Early Friday morning, eyes around the world will be focused on Copenhagen, Denmark, where the International Olympic Committee (IOC) will announce the host city for the 2016 Olympic and Paralympic Games. The announcement ceremony figures to be quite a spectacle, with heads of state from the four finalists expected to make last minute pleas for their respective cities. President Obama will appear to support Chicago’s bid, while King Juan Carlos of Spain will appear on behalf of Madrid and Brazilian President Luiz Inacio Lula da Silva will represent Rio de Janeiro. New Japanese prime minister Yukio Hatoyama will also appear to bolster Tokyo’s campaign.
The opening ceremonies for the 2016 games are still more than six years away, but the winning nation could see an economic boost long before the opening ceremonies. As Beijing showed last summer, hosting the Olympics is a monumental endeavor that takes years of preparation, construction, and development to pull off. While estimates for the cash generated for hosting the games vary greatly, most economists agree that winning the right to host the games can provide a boon to almost any economy. As the very competitive race draws to a close, we take a look at several ETFs that could post gains following the final vote.
Madrid is one of Europe’s most popular tourist destinations, a modern metropolis and financial center that has managed to maintain a historic look and feel. Madrid is one of the few European capitals that has not hosted the Olympics, although the city made a strong bid to host the 2012 games, ultimately losing out to London. If Madrid is successful this time around, two ETFs that might benefit include:
- iShares MSCI Spain Index Fund (EWP): EWP invests in stocks of 30 Spanish companies, with a tilt towards large cap equities and the financial sector. The construction sector accounts for a significant portion of Spain’s economy, and has seen a steep downturn in the current economic environment. If Madrid’s bid is selected, these companies could get a huge shot in the arm as the work to build venues begins (see recent performance for EWP on its charts page here).
- Vanguard European ETF (VGK): This ETF offers diversified exposure across continental Europe, a region that figures to see significant increases in economic activity if Madrid is selected as the host city. With nearly 500 individual holdings (see the breakdown here), VGK offers diversified exposure across a number of countries and sectors.
While Madrid’s bid enjoys widespread public support, questions over the strength of the Spanish economy linger, with some fearing a prolonged and severe recession that could send unemployment as high as 25%. This economic uncertainty makes Madrid a long shot to host the 2016 games. Odds: 16-1
Tokyo is one of the world’s largest and most interconnected cities, and successfully hosted the 1964 Summer Olympics and 2002 World Cup. Tokyo’s team is touting “the most compact and efficient Olympic Games ever” with a setting on the city’s waterfront, an area previously used for industry and shipping. Following in the paths of Barcelona and London, Tokyo will attempt to revitalize a rundown area with new retail, residential, and entertainment venues. If Tokyo succeeds, several Japanese ETFs could get a boost, including:
- iShares MSCI Japan Small Cap Index Fund (SCJ): Whereas many Japanese equities ETFs are dominated by holding in large cap companies such as Toyota and Honda, SCJ focuses on smaller Japanese companies, and includes many that could be selected to bid on construction activity related to the Olympics. With 570 individual holdings, this ETF offers diversified exposure to nearly every corner of Japan’s economy (see more fundamentals of SCJ here).
- SPDR Russell/Nomura Small Cap Japan ETF (JSC): This ETF also offers diversified exposure to small cap companies operating in Japan, with its three largest allocations going to industrials (23%), consumer discretionary (21%), and materials (15%), three areas of the economy that could benefit from a winning bid.
In August, prime minister Taro Aso, one of the most vocal supporters of Tokyo’s bid, was ousted from power when voters handed his conservative party a decisive defeat. Public support for the games is the lowest of the four cities, and many believe the IOC will look to a region of the world that has not hosted the Olympics in some time. Odds: 12-1
Rio de Janeiro, Brazil
Having hosted the Pan American Games in 2007, Rio has in place many of the facilities that would be required for the Olympics. After failing to make the short list for the 2004 and 2012 Games, Rio has finally been selected as one of the finalists, perhaps in part due to Brazil’s selection as the host for the World Cup in 2014. Brazil is the only emerging market on the list of finalists, and its selection could give a boost to several ETFs, including:
- iShares MSCI Brazil Index Fund (EWZ): EWZ invests in approximately 30 companies, and has significant allocations to the materials and energy sectors. EWZ has been one of the top-performing equity ETFs this year, already gaining nearly 90% in 2009 (see technical analysis of EWZ here).
- Market Vectors Brazil Small Cap ETF (BRF): While other Brazil ETFs are concentrated heavily in large cap companies, BRF invests exclusively in small cap firms, meaning that this ETF is not dominated by commodities and materials companies, but rather offers exposure to the “real Brazil,” including home building and consumer goods firms.
Rio’s bid to host the Olympics enjoys strong popular support, guaranteed financing, and sufficient accommodations for spectators, making it the early favorite. Some members of the IOC are reportedly “enamored of the idea of correcting the Games’ historic neglect of South America,” reports Alexei Barrionuevo. Rio remains a viable host city, and its odds have slipped only as Chicago has strengthened its bid. Odds: 2-1
Chicago’s bid to host the Olympic games has been bolstered by support from a number of celebrities and former gold medalists, including Oprah Winfrey, Michael Jordan, and Michael Phelps. Chicago was selected to host the 1904 Summer Olympics, but the Games were moves to St. Louis to coincide with the World’s Fair. Chicago also bid unsuccessfully for the 1952 and 1956 Olympics. ETFs that could benefit from Chicago’s selection include:
- PowerShares Dynamic Building & Construction Portfolio (PKB): This ETF’s list of holdings is full of firms that would likely have an opportunity to bid on major construction projects throughout Chicago that would need to be completed prior to the games. In addition to venues and residences, many speculate that the city would be required to update its aging public transportation system in order to pull off the Olympics. Engineering firms such as Jacobs, URS, and Fluor, all major holdings in PKB, could benefit from a face lift to one of the largest cities in the country (for more information on PKB make sure to check out their fact sheet here).
- Claymore/NYSE Arca Airline ETF (FAA): When Atlanta hosted the 1996 Summer Olympics, an estimated 2 million visitors flocked to the city, giving a huge boost not only to the city, but to the domestic airlines that brought them there. If Chicago’s bid is accepted, airlines like Continental, Delta, and Southwest, which make up nearly half of FAA’s assets, could see a small jump.
Chicago’s Olympic bid received an added boost this week when President Obama announced that he will travel to Denmark for the IOC’s decision. While there is no official IOC rotational process, the U.S. may have the edge since the Olympics will have been held in Asia, Europe, and Australia since the U.S. was last a host. However, public support for the Games has eroded in recent months amidst concerns over financing, a pattern IOC members have no doubt been watching closely. Odds: 4-5
Disclosure: No positions at time of writing.