FIFA-32 vs KSE-100

The biggest sporting event on the planet kicks off today in South Africa with billions around the world already gripped in the football fever.
The euphoria can be gauged by the fact that financial houses as big as Goldman Sachs, JP Morgan, Deutsche bank, Standard Chartered and many others have come up with prediction models of their own - each pitching their favourites based on mathematics, economic state of the participating countries and what not.
The event is likely to attract a small matter of £7-8 billion from the betting market worldwide, according to different estimates. Pakistan is definitely a minor player in the football betting market, but it is still fairly active.
There are surely going to be lesser people complaining of thin parking space in the parking lot at Karachi Stock Exchange during the Fifa World Cup. But, the narrow lanes of across the road in nearby vicinity might get choked, as many would be participating in the bet fair that goes all the way till the tournament ends.
Being illegal, unlike in many other countries, the size of Pakistan betting market is not an easy task to find out unless you are an insider. But, whatever its size, a global sporting event has an impact on how the KSE equities perform before, during and after the World Cups - be it Football or Cricket.
Tracking the KSE historical data, evidence suggests that the market volumes get depressed during the World Cup in relation to the preceding months, only to bounce back once the World Cup is over.
Trading volume, during four out of five Cricket and Football World Cups held between 1998-2007, dropped 27 percent over the average turnover of the 30 days before the tournament. The drop is steeper (40 percent) when World Cup period volumes are compared with that in the two months period before the games begin.
This phenomenon can be attributed to diversion of investor interest away from KSE towards the more lucrative game over World Cups.
Once the event is over, volumes at KSE rebound by an average 14 percent and 23 percent in the two months following the World Cup final.
This typically comes alongside positive returns seen at the KSE, which typically falls during the 30-days period prior to the tournament.
The recent 9 percent dip in KSE index simply reaffirms the instances recorded in the previous five tournaments, where almost every other time, the market has gone down in double digit percentage points, leading to an average fall of 13 percent in the last five World Cups.
Clearly, this cannot be a random coincidence. From trading perceptive, KSEs pre-world-cup falls simply reflect the room that the investors create prior to the season to sit liquid for the betting game.
So, yes if world cups are any guide, there is hope that once the tournament is over, the market will tick up, as all those who have been lucky might merrily return to the bourse.