(May 28, 2014) — If you fancy a bet on this year’s football (“soccer”) World Cup, Brazilian equities may be your best option—at least according to Goldman Sachs research.
The investment giant has published its fifth World Cup and Economics report analysing the economics of each of the 32 nations competing in the tournament, as well as applying its own metrics to the draw to predict which nation will triumph in the final in Rio de Janiero on July 13.
Perhaps unsurprisingly, host nation Brazil is Goldman’s favourite to win, given its historically strong and consistent showing in the tournament as well as the backing of its home support.
Something else for the home fans to cheer about, according to its equity market research, is “a clear pattern of [equity market] outperformance by the winning team in the weeks after the World Cup final”.
However, “weeks” is the key word. Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer wrote in his analysis that the equity markets of World Cup winners outperform global markets by 3.5% on average in the first month after lifting the trophy, but this usually gives way to a slump after three months.
By the time 12 months have passed, “the winning nation doesn’t tend to hold on to its gains and, on average, sees its stock market underperform by around 4%”, Oppenheimer added.
“The message seems to be: enjoy the gains while they last,” he said.
Elsewhere in the report, and on a more serious note, the financial highlighted disparities between the high expectations placed on the Brazilian football team and the fortunes of its struggling economy.
“The entire nation hopes that the performance of the national football team during the World Cup tournament will be much better than the performance of the domestic economy,” wrote Alberto Ramos, co-head of Goldman Sachs’ Latin America Economic Research team.
Ramos said the next Brazilian government—which will be elected in October this year—must tackle the country’s high level of inflation and set its economy on a path to “solid investment-driven non-inflationary growth”. Goldman Sachs estimates show the Brazilian economy to have grown at roughly 2% a year since the last World Cup in 2010, comparing unfavourably to many other emerging market economies, while inflation has remained high at 6%.
“Hope is strong in Brazil – whether in the desire to fulfil a dream by winning its sixth World Cup at home, or in securing for Brazil a position among the global economic powerhouses,” said Paulo Leme, chairman of Goldman Sachs Brazil.
“With the right policies, Brazil can achieve the latter while attaining better income distribution, lower inequality and broader access to high quality health and education.
“Like in football, pragmatic leadership and a good game plan can put Brazil back on track if the ‘coaches’ adopt sound domestic demand management policies and implement structural reforms aimed at boosting productivity.”