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Here at BetaShares we have often compared major sporting events with investing, whether it be by demonstrating what a FIFA World Cup winning side can teach us about investing, or how an NBA Championship winning team can demonstrate that sometimes Defence is the Best Offence.
With the Rugby World Cup recently kicking off in Japan, we thought we would celebrate the occasion by highlighting the impact a major sporting event can have on a country’s economy.
The First XV Numbers
With the tournament being hosted in Japan, it marks the first time the Rugby World Cup has been held in Asia proper. Over the course of six weeks, 20 teams from around the world will compete in 48 games, across 12 different cities.
Japan is hoping for 1.8 million people to attend, 400,000 of them being international fans. This is where Japan hopes to benefit the most, as past international tournaments have shown that overseas visitors have stayed beyond the Cup’s conclusion and travelled the host nation more broadly. Deloitte estimated that 9% of international visitors to Australia’s Rugby World Cup in 2003 were expected to return.
A report released in 2018 by Ernst & Young1 estimated that the event will generate a total of ¥437.2 billion ($6 billion) in economic output, including spending on infrastructure, stadium/venue operations, accommodation, food and beverage consumption, tourist activities, and the provision of services to teams, guests and the media.
EY is projecting a boost of ¥216.6 billion ($3 billion) to Japan’s GDP. Further, the event is expected to increase tax revenue by ¥21.6 billion ($300 million) and create 25,000 jobs. Finally, infrastructure investment is expected to surpass ¥40 billion ($600 million) and encourage greater immediate attendance and long-lasting revenue.
The potential benefits of the World Cup to the Japanese economy are summarised in the chart below.
Source: Ernst & Young. Actual outcomes may differ from projections.
A Long-Lasting Union
Japan no doubt hopes that the economic effects of the Rugby World Cup are long-lasting and that, in hosting the tournament, they are able to demonstrate their ability to host a successful Olympics in 2020.
A key focus for Japan’s Prime Minister, Shinzo Abe, has been on achieving economic growth through tourism. Abe has set a target of Japan achieving 40 million visitors by 2020 and then 60 million by 2030. Over the past five years, Japan has enjoyed a tourism boom. In the first half of 2019, the country saw record inflows of nearly 17 million visitors, up 4.6% from the previous year (also a record)2.
Hoping to increase this growth, and in preparation for the Rugby World Cup and Olympics in 2020, Japan has eased visa requirements and increased the number of low-cost carriers and other flights. Further, the major cities that are hosting matches have each been developing integrated tours of sightseeing spots in neighbouring regions.
Previous tournaments in Asia have demonstrated the important economic long-term effects that sporting events can have. The 2002 FIFA World Cup, the first in Asia and hosted jointly by South Korea and Japan, vastly increased the amount of international signage on Japan’s streets, roads and in train stations, and increased employment of English-speaking staff. The event was a catalyst for the growth of Asian sport and, in turn, infrastructure and the value of television rights. This has seen an increase in English Premier League teams conducting Asian tours and star players transitioning from European football to Asian leagues and, as result, an increase in revenue for the region.
These positive economic benefits are precisely what Abe is hoping will accrue to Japan in hosting the Rugby World Cup and Tokyo Olympics next year, an event of much grander scale.
With the odds indicating an Australian victory at the Rugby World Cup as a very low probability (26/1 at the time of writing!) – what other options are there to look to ‘win’ from Japan? For those with a positive view on Japan as an investment destination (perhaps inspired by the home team’s efforts so far), BetaShares offers the BetaShares Japan ETF – Currency Hedged (ASX Code: HJPN). The fund focuses on globally competitive Japanese companies that generate at least 50% of their revenues from outside Japan.
Being currency-hedged, HJPN provides investors with a more direct exposure to the performance of the Japanese equities market without the added uncertainty of foreign currency movements.
Over the last year, the performance of the Fund has been hit by the contagion of the US-China trade war and slowing global growth, as well as a recent diplomatic stand-off between Japan and South Korea. That said, the Fund’s performance more recently has shown signs of recovery. Indeed, for those interested in taking a longer-term view on the land of the rising sun, the potential for a sports-led boost to the Japanese economy comes at a time when its equity market arguably offers reasonable value when compared to global valuations.
1. Ernst & Young, The Economic Impact of Rugby World Cup 2019
2. Source: Japan Tourism Agency