Financial football: The Multi-Asset World Cup
While the 2018 football World Cup is still in the early stages, we have already been holding our own multi-asset tournament, in which the 32 competing nations battle for goals on several economic and financial criteria. Which teams will go far, scoring goals on economic excellence, and which ones will flunk at the final financial whistle?
The 2018 World Cup was supposed to be the year when football came home. Instead, it's in Russia. We want to bring you the excitement of the World Cup by running our own Multi-Asset World Cup. At least with this World Cup, England stand a chance!
Each country in our World Cup competes on a number of economic and financial market criteria; the same type of criteria that we use in the Multi-Asset team to decide what countries and markets might make good investments, but here with even more fun!
In the group stages (read here) teams competed on government debt as a percentage of GDP, the Gini coefficient and their political risk score. Pre-tournament footballing favourites Brazil and Argentina crashed out of the competition, which is maybe suprising for the average fan but not for our more fiscally focused pundits, who had little confidence they would make the grade based on their recent economic woes. By contrast, the strong performance of the nordic trio (Denmark, Sweden and Iceland) was particularly noteworthy. None of them conceded a goal!
In the knockout stages (read here), we moved the goal posts with three different criteria. These were dividend yield – often the higher, the better for income-focused investors; we then fielded dependency ratios – the lower, the better; and the real effective exchange rate (REER). The Japanese were particularly unhappy when they saw the criteria for goals being drawn – they suffer from a famously low dividend yield (something that Prime Minister Shinzo Abe is looking to address through corporate reform) while among 16 opponents, England (represented by the FTSE 100) has a famously high dividend yield. In addition, the ageing Japanese population suffers from a shocking dependency ratio of 65.3, meaning that there are almost two non-working age people in Japan for everyone in the traditional working age group. No surprise then that they dropped out. Elsewhere, Portugal passed both Uruguay and France to make it to the semi-finals and hosts Russia also progressed.
The semi-finals saw Russia taking on Germany and England against Portugal. For the semi-final and final matches we upped the stakes and set four criteria that lead to goals: the misery index; equity returns over the last four years (conversely to what you might expect, investors may actually want to see a low number here as a low equity return over the last few years could be a proxies for equities with cheap valuations today); the World Economic Forum's Technological Readiness Index and Infrastructure Index.
England fans were keen to point out this was the exactly the same semi-final match-ups as the 1966 World Cup, though of course with West Germany versus the USSR as it then was. Could football finally come home again after 52 years of hurt? You will have to see...here