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When stocks cop their share of sporting highs and lows

By Peter V O'Brien

Friday 10th October 2003

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Sharemarket observers will have the opportunity over the next six weeks to gauge the effect of non-financial matters on investor sentiment.

Admittedly, any meaningful assessment will probably be confined to movements on the New Zealand market, because this is the only country where results of rugby matches affect the mood of a big section of the population.

It is less than farfetched to suggest the fortunes of the All Blacks at the Rugby World Cup may be reflected in activity on the New Zealand sharemarket. The outcome will have no effect on markets in the US, Europe, Asia or developing countries. It is unlikely to influence trading in host country Australia or in South Africa, probably the nearest to New Zealand in terms of rugby fanaticism.

Things are different here, despite the heretical fact that a fair slice of the population has no more than a passing interest in the competition or (greatest heresy) no interest.

The reality is that a significant number of people stake national identity and wellbeing on the success or failure of a sports team in a minority sport in world terms.

Anyone who doubts that should read the outpourings of print media sports journalists (who tend to cater for and reflect the views and interests of their readers) and calls to talkback radio. It is immaterial that much of the latter is close-minded blather (including the responses of many talkback "hosts") because blather can set a mood if enough people propound it or subscribe to it.

The attitude of many New Zealanders to rugby and their depression when the national side loses have their counterpart in other countries with their national sports. The phenomenon is most pronounced in several countries where "football" is the national passion.

New Zealanders have yet to erupt in civil disorder after an All Black defeat but there have been definite mood changes in the past, irrespective of how many people shrugged off the setback and got on with life.

It is always difficult to isolate one or two influences on investor sentiment from the stew of political, economic and industrial ingredients that affect markets, but even sport can play a part in setting moods. Add in the basic irrationality of so-called "rational" markets, as seen in mob reactions daily to minor news, and examining sports auguries could be a valid "analytical" tool. The trick is persuading other people of its validity in the face of competing evidence to explain market movements.

That could be difficult if, for example, the New Zealand market fell after the All Blacks drew or (horrors) lost a World Cup pool match (or missed out on the Cup itself) and other markets declined on bearish international political news. Conversely, would a win for New Zealand in the Cup final be sufficient to offset all, or part, of the fallout from the general information influencing markets.

The results of sports contests can have effects in other apparently unrelated areas (violence levels, for example), so there could be an impact on investor confidence. We will see what happens through to late November and whether it "proves" anything about investor behaviour in the New Zealand market.

You can bet no Wall Street trader will dump stocks if the US follows usual Rugby World Cup practice and drops out after pool play, nor will London fund managers reorganise portfolios if England has a bad day. They are concerned about other matters, specifically international politics, trends in major economies and the effects of events such as corporate financial scandals. Even that can result in irrationality, on the basis of "an issue a day" approach.

Examination of the reasons given for daily movements in US market indices illustrate the point. Shares rose on Monday, September 29, as "investors scooped up stocks that were beaten down in last week's slump." They "sagged" on September 30 "after unexpectedly weak reports on business activity in the Midwest and consumer confidence" raised concerns about the economic recovery.

A report for October 1 said stocks jumped as investors bought shares beaten down in the previous session and reacted to a report showing the manufacturing sector continued to expand. "The mood was subdued" on October 2, ahead of the next day's September jobs report. Out came the report and up went the indices after information that employers added jobs for the first time in eight months. The news "boosted investors' expectations for an economic rebound."

That was last week; it could have gone the other way this week. Perhaps it is not far out to suggest sports contests can affect market sentiment.

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