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Blair Campbell - FootballWe are one week into the Football World Cup and I thought it might be interesting to assess the correlation, if any, between a nation’s stock market and macroeconomic picture to their form at the 2018 tournament and whether this could give us an indication of a possible winner.

We will start by looking at the bookmakers’ favourite coming into the start of the cup, Brazil. A promising start to the year was reflected in the Bovespa Stock Market Index climbing close to 15%, in local currency terms, by the end of February. The macro environment had remained encouraging through the end of Q1, and the beginning of Q2, with climbing GDP rates forecast into 2019 with a fall in the unemployment rate also indicated. May brought about a turning point in the economy: GDP growth rates have been downgraded, coupled with raised debt estimates, the currency is off 7% versus the US Dollar since the start of May, and the Bovespa has fallen 16.67% (local currency) since the 16th of May. On the pitch, the football team has also failed to dazzle. An underwhelming performance led to a 1 – 1 draw with the Swiss, though the team should still manage to progress into the second round and remains the bookmakers’ favourite.

The second favourite at the start of the tournament, multiple winners and defending champions, the Germans, have also come out of the blocks a little sluggishly. Arguably with one of the most challenging groups to navigate, the Germans sit at the bottom of Group F having lost to Mexico in the first game and are in real danger of not progressing, with a difficult encounter with the Swedish next. Looking at the political backdrop in Germany could perhaps have given us an indication of what has transpired in Russia. German Chancellor Angela Merkel, after over a decade in office, is facing what many believe to be the worst crisis of her time in the job, with cracks appearing in the coalition relationship of the CDU (Merkel’s party) and the CSU over their opposing views on immigration. That coalition was formed in February, four months after elections were held, which has led to uncertainty in the stability of Europe’s principal power. This new stand-off threatens the break up of the delicate relationship. Germany has since fallen to 4th favourite with the bookies.

After an hour or so of Spain’s match with Iran, the Spanish were in real danger of missing out on progressing into the next round; mind you, this is still a possibility if Morocco can pull off an upset and the Iranians can put in a similar performance against the Portuguese. One strike by Diego Costa allowed a nation a collective sigh of relief after the team’s opening match 3–3 draw with Portugal. This was after Spain was plunged into turmoil when their national coach was sacked on the eve of the tournament. Incredibly, this had been emulated earlier when the Prime Minister, Mariano Rajoy, was forced out of office after a vote of no-confidence and on the 5th of June resigned from office. The Spanish economy had been performing favourably, showing resilience in a broader slowdown on the continent with Q1 being the 3rd consecutive quarter of growth. Spain is now the 2nd favourite.

Turkey aside, Argentina’s economic position is arguably the poorest in the investable universe. Their currency is in crisis, down 33% year to date, and after a loss of confidence in fiscal and monetary policy, they have turned to the IMF for financial support. USD50bn will be provided and is the largest loan ever agreed by the IMF; in return, the fiscal deficit is required to be reduced over the next few years targeting a surplus in 2021. Amazingly, the country was this morning elevated to Emerging Market status by index provider MSCI after being downgraded in 2009. Not having won the cup since 1986, one of the world superpowers of the game could be accused of underachieving, but with one of the greatest players to pull on a boot, the diminutive Messi, expectations are high. The current economic disorder has corresponded with the team’s performance, drawing 1–1 with minnows Iceland in their first game. The team is very much in trouble and will be doing well to get out of the group. Another four years wait it seems.

Speaking of underachieving, the English haven’t hoisted the cup since 1966 and can attest to the fact that the Icelandic side are no easy win, after being knocked out by them at Euro 2016. On the political front, Brexit bills have caused unease and instability in parliament; however, the EU (Withdrawal) Bill has since been passed and will now go for Royal Assent, which should provide some relief to Theresa May. Sterling has plummeted 8.5% since mid-April against the US Dollar, as rate rise expectations have come off on the brink of a lower growth outlook. The sides performance, or more accurately their first result, like the current state of the economy, was reasonable when they got through a tricky encounter with Tunisia and should progress by picking up a point in either of their next two games, leading to narrowed odds. Perhaps the drought can be broken this time around?

The French won the cup for the first and only time in 2000 and in a European football, and economic context, have been overshadowed by their partners in the Eurozone project, Germany. With Merkel facing difficulties in Germany, France has the opportunity to increase its importance in Europe. However, France’s economy, after having an encouraging 2017, has started to soften. Its jobless rate is forecast to be 8.8% (more than double that of Germany), corporate investment is slowing, GDP growth is expected to fall sharply in 2018 from 2.3% in 2017 to 1.7% in 2018 and President Macron’s approval rating has fallen below 50% as France looks to reform the civil service. Les Bleus picked up 3 points against Australia and top group C, at 3rd favourite, they could add to the one cup they already have in the trophy cabinet.

If a country’s economy or political stability provides any indication of who may win this year’s World Cup, then I don’t like the chances of any of the major players. Perhaps we should simply go on form, then my pick… Belgium!

Download: Weekly Comment -June 22 2018 – BC




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