Continuing our recent theme of financial analysts-turned-football-experts, we bring you a Friday edition of 2010 World Cup predictions. This time the conjectures come from two different financial outfits, using two very different methodologies, but leading them to the same (South American) conclusion.

First up is Danske Bank.

The Danish bank have published their 2010 World Cup predictions, as well as some macro-analysis on the potential impact of the tournament on host South Africa.

Here’s their rather numerate model:

In semi-English, Danske are using six factors (income level, population size, football history and tradition, current form of national team, presence of ‘superstars,’ and home field advantage) to gauge the teams relative strength using the above model. Then they simulate the Cup schedule, et voila . . .

. . .  the forecast winners:

The model simulations indicate that the economically and financially ailing PIIGS countries will not find much to cheer about on the football field either. In fact the PIIGS – or rather Portugal, Spain and Italy – will probably beat each other and finally Germany will knock out Italy – a prophecy that some might find symbolic. Greece will not fare any better and is set to go before the knockout stage.

The final will be played on 11 July in Johannesburg between Germany and Brazil – if our model is correct. And as in “real life” the Emerging Market nation will beat the developed nation. Said another way, we expect Brazil to once again become World Champions. So, we are happy to be long Brazil as we head into the World Cup.

How very ironic.

Of course, Danske’s methodology rather pales in comparison to the high-tech stuff used over at Evolution Securities. Credit specialist Gary Jenkins put forth his own football predictions on Friday morning:

Yes it’s that time again when analysts like me who can barely predict what is going to happen in the market the following day turn away from our area of so called expertise and instead focus our attention on who is going to win the World Cup. I first got involved in this attempt to get some publicity 8 years ago, when Goldman Sachs produced a report combining economics and the World Cup and included their predictions as to who would get to the last four (I believe they got them all wrong) and had Sir Alex Ferguson pick his all time best World Cup team. I decided to do the same thing but had to explain that we could not afford Sir Alex. Thus I got my dad to pick his all time team. It caused more client complaints than most of my research and my favourites to win the tournament got knocked out early, so I abandoned this kind of research for a while.

However I have decided it is time to resurrect it and am therefore happy to make the official Evolution Securities Fixed Income Research Team prediction for the 2010 World Cup. Instead of just choosing it myself though I have used the specially built proprietary trading quantitative model that we have been secretly working on for this very purpose. I employed a bunch of ex rating agency CPDO modellers and supplied the Airfix kit from my own resources. Then using a load of economic inputs, which were carefully selected and weighted, and include the following;

GDP (and breakdown), Unemployment Rate, Jobless claims, Employment, Earnings, Industrial Production and Orders, Productivity, Capacity Utilisation, Capital Expenditure, Personal Income/Savings, CPI, PPI, Money Supply, Mortgage lending, Consumer Credit, House Prices, Housing Activity (New home sales/existing home sales), Construction, Building Permits, Retail Sales, Wholesale Sales, Auto Sales, Durable Goods, Trade Balance, Export & Imports and Export/Import Prices, Capital Flows, TIC Flow, Government deficit/revenue/expenditure, Govt Debt, Survey data, consumer/manufacturing/services confidence, Fed Manufacturing Surveys/Conference Board/ IFO/ZEW, bank lending surveys, Senior Loan Officer Survey, Beige book, Leading Indicators…….. and whether or not they are any good at football …

… we asked the model to select the last 8 and the overall winner. After a couple of variable outputs (the first answer was “42” and the second was “AAA, stable outlook and that will be $100,000 please”) we turned the computer off and on, gave it a gentle kick and it provided the following answers; Netherlands, Brazil, Nigeria, England, Germany, Argentina, Italy and Spain.

The winner will be Brazil.

Ha. One wonders what Danske would make of that.

Anyway, for those who can’t keep up with all these investment bank football shenanigans (and are still interested), we’ve stuck all the World Cup-related notes we have in a single place in the Long Room.

So far the predictions look like this:

• UBS - Brazil

• JP Morgan – England

• Danske Bank – Brazil

• Evolution – Brazil

Goldman Sachs, as is their habit (see above), aren’t guessing a winner.

They’ve hedged themselves by picking the four semi-finalists:

• Goldman Sachs – England, Argentina, Brazil and Spain.

Related links:
World Cup infects structured products - Risk

This entry was posted by Tracy Alloway on Friday, May 28th, 2010 at 8:40 and is filed under Capital markets. Tagged with Brazil, football, soccer, south africa, world cup. Edit this entry.