Top buy: Goldman Sachs tips Brazil to win the FIFA World Cup

Written by fe Bureau | Mumbai | Updated: May 30 2014, 19:12pm hrs
Fifa world cupGoldman Sachs, for one, has predicted that hosts Brazil are the most likely to walk away with final glory at the FIFA World Cup 2014. (Reuters)
Crystal-gazing is not an exact science. But with just about two weeks to go for the world's greatest sporting extravaganza to begin, punters and experts are throwing their hats into the ring to predict a surefire winner just like the late Paul, the octopus that proved to be the ultimate soothsayer four years ago.

Foreign brokerage Goldman Sachs, for one, has predicted that hosts Brazil are the most likely to walk away with final glory at the FIFA World Cup 2014. The brokerage's statistical model favours Brazil, Germany, Argentina and Spain to reach the tournament semifinals, culminating in a Brazil versus Argentina final.

Goldman Sachs gives a 50% probability for an overall Brazil win against 25% given by Ladbrokes bookmakers, a world leader in online and gaming. "The most striking aspect of our model is how heavily it favours Brazil to win the World Cup, with Argentina and Germany next most favoured but much lower down in probability. Of course, it is hardly surprising that the most successful team in football history is favoured to win a World Cup at home. But the extent of the Brazilian advantage in our model is nevertheless striking," states the report.

The brokerage lists four main reasons why its model favours Brazil by such a large margin. It states that Brazil is the highest rated team in the Elo system.

Another reason is that Brazil is a particularly strong performer at World Cup tournaments, with a track record of five World Cup wins. Home advantage is also an important factor the home team has won 30% of all World Cups since 1930, and over 50% of all World Cups held in a traditional football powerhouse nation. Lastly, the report, says that home continent will be a major advantage, particularly for Latin American teams.

Goldman Sachs says historical data suggest that a World Cup win can even have a bearing on the equity market of the winning team. On average, the victor outperforms the global market by 3.5% in the first month a meaningful amount, although the outperformance fades significantly after three months. For instance, Brazil outperformed the MSCI World index by 21% in just one month after its win in 1994; on that occasion, the bull market continued and the stock market outperformed by 38% over just three months despite a staggering 39% outperformance in the year leading up to the games.

However, the brokerage adds that the winning nation doesnt tend to hold on to its gains and, on average, sees its stock market underperform by around 4% on average over the year following the final. The message seems to be: enjoy the gains while they last...

The equity markets of World Cup runners-up perform much more abysmally. The average relative outperformance of the runner-up is 2% over the first month but over the first three months most of the World Cup runners-up have seen their stock markets continue to underperform.

Indian football fans will be a tad disappointed by Goldman Sachs' grim analysis of India's future World Cup prospects. India seems unable to produce 11 word-class players, even though 30% of its 1.2 billion population are aged between 10 and 24.