British stocks expected to soar following Olympic Games

Equity investors wishing to cash in on the London Olympics can take their pick from British hotels, advertisers or retailers — history suggests the FTSE 100 could shine in the following 12 months.

The past five games saw the host nations’ stock markets outperform the MSCI global benchmark by an average of 16.4% over the year following the event, research from Saxo Bank shows.

“The local index tends to outperform the other indices... just basically from the publicity the country receives,” said Mathieu Bolduc, equity analyst at Saxo Bank and author of the report.

“From a historical perspective the odds [for UK top stocks outperformance] are very good.”

While any aggravation of the eurozone crisis poses a risk to the FTSE index of top stocks’ prospects, the benchmark is supported by attractive valuations and remains a popular bet for investors keen to avoid direct exposure to mainland Europe.

The FTSE 100 is trading at a 12-month forward price to earnings ratio of around 9 times — cheap compared with its long-term median of around 12.8 times and to the US S&P 500 index on 11.8 times, according to Thomson Reuters Datastream.

Societe Generale, which increased the allocation of British equities to the maximum 10% in its multi-asset portfolio this week, listed the Olympics as an additional reason for liking the FTSE over the S&P.

A more direct way to play the games could be through buying individual stocks. Some analysts have recommended Aggreko, the world’s biggest temporary power provider. It has secured a contract valued at about £50m (€62m) for the games.

Intercontinental Hotels Group, which will run the athletes village and lodge visitors, is also set to cash in.

Many retailers are counting on the Olympics to fuel spending. Market researcher Kantar expects grocery sales to “soar”. For others, the scale of any benefit is hazy. Debenhams, for example, said the impact of the games was still “uncertain”.

“Spending on sports-related items might benefit from a short-lived uptick in participation among the general public, with a boost to pain relief medication shortly after.

“Food, drink and televisions could also benefit as the nation settles down to watch sports,” RBS analysts said.

“But equally we can’t be on the High Street and on the sofa at the same time and reduced footfall could actually offset any direct boost from the Olympics.”