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A sporting chance

Nicola York asks if the 2012 London Olympics will bring a golden economy

London has won the 2012 Olympics but will the city and the country win the financial challenge?

Research from Standard & Poor’s claims the 1992 Barcelona Olympics paid off, with tourist numbers doubling from 1991 to 2000. However, Montreal suffered the biggest Olympic loss in 1976 when budgets spun out of control and the city was left with significant debt.

Seven Investment Management marketing director Justin Urquhart Stewart believes there are opportunities for invest- ing in infrastructure and development but cautions that contracts are yet to be awarded. The main issue he flags up is the attraction of capital to one area. He says: “By ensuring that however many billions it is going to cost is actually going to be focused on East London and the South-east, it will affect everything from property values through to investment in infrastructure and retail investment.”

But he says care is needed picking stocks due to many variables. He says: “It is far too much of a horse race and you would be better off just keeping a broad view.”

He believes the Olympics will be good for the UK economy, saying: “Invest-ment begets investment because once you start something like this you create more of a virtuous circle.”

But F&C Asset Management chief economist Steven Andrew dismisses the idea that the games will have a large-scale impact on the economy.

He says: “There is a large body of academic research analysing the economic effect of hosting major sporting events such as the football World Cup and the Olympic Games. The consistent findings of this research are that the impact of hosting such events is likely to be very small.”

SVM investment manager Brian Moretta says: “In terms of local economic benefit, the benefit to London and the East End in particular is huge. Managed correctly, it has the ability to encourage a sea-change in terms of urban redevelopment of that area. I think, perhaps, it is more of a social good than a stockmarket good.”

Moretta says we should learn lessons from the mistakes that Athens made in the 2004 Olympics, when hoteliers put up their prices in anticipation of a boom and scared people off.

He says: “The experience in Greece, for example, was that while you got people coming in for the Olympics, normal tourists gave the place a bit of a body swerve at the time, so it is not necessarily the clear win for airlines and hoteliers that you might think.”

Moretta believes the games will raise the profile of the UK to some degree but he says investors are going to be focused on the 2008 Olympics in Beijing because “China is a much hotter inward investment story than the UK.”

Urquhart Stewart thinks there is a danger the effect of the London Olympics will be over-hyped and says it is important to take a cynical view. He cites Eurotunnel and the Millennium Dome as examples of various projects which have gone wrong because of political interference.

But he is quick to note that even these projects have had a knock-on benefit to the surrounding area. He says: “The money being spent had an impact so that is the generic tick. Everything else after that, you need to cock an eyebrow and to look very carefully because what seems like a racing certainty now, may look like a racing failure when we get the Olympics.”

Hargreaves Lansdown research director Mark Dampier says: “I struggle to see what major effect it is going to have, other than one or two lucky construction companies. Why should it increase investor confidence? The only thing that increases investors confidence is companies making money. Ultimately, what drives share prices is profits, so the Olympic Games might make some money but it is kind of limited isn’t it?”

He says the biggest impact on Greece was that they had their worst tourist season in 30 years because everyone stayed away, thinking it was going to be overcrowded. In an economy as big as the UK’s, he thinks the Olympics are not going to have much of an effect.

But T Bailey co-fund manager Jason Britton says: “I think the impact will be quite widespread – we must not underestimate how big the Olympics is. I think if you do some analysis of stock-market performance in other countries which have hosted the Olympics round about the time, I am guessing it would probably be quite beneficial.”

But he thinks it is too early to be more specific and it will take time to work out who the winners and losers will be. He adds: “I know that the FTSE 250 responded resoundingly to the news on the day the Olympics were awarded to London and construction companies led the way.

I think if it is a good Olympics, it will be fantastic for London and the UK economy as a whole.”

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