And the World Champion is...

UBS E-News for Banks, May 2010

keywords: World Cup, Brazil, Germany, Italy, Spain, South Africa, Africa, China, models and predictions, investing in Africa.

Executive Summary

According to UBS Wealth Management Research, Brazil has the best chance to win the World Cup in South Africa, with Germany and Italy also likely to go far.
Since past performance is a very good indicator when it comes to World Cups, Spain favored by many will likely not do well, and could exit before the semi-final stage.
South Africa, the host nation, will also likely not progress any farther than that.
Such predictions have to be treated with caution, however. Although the model used to make these picks was near perfect in 2006, it failed badly during the European Championships in 2008.
As well as football, the 2010 World Cup provides a good occasion to take a look at the African economy.
Although the total market capitalization of the entire continent is barely one-third that of the Swiss stock market, astonishing economic developments are taking place there, including the emergence of China as one of the biggest foreign investors.

Back in 2006, UBS Wealth Management Research (WMR) made waves when it not only correctly picked Italy to win that year's World Cup, but also correctly picked 50% of the semi-finalists, 75% of the final eight and 81% of the final 16. Those predictions, made using WMR's own analytical model, were published at the time as part of a special edition of the UBS investor's guide. This year, with the World Cup set to begin in South Africa in June, WMR has once again looked into its crystal ball, publishing a special edition investor's guide containing its predictions for the upcoming tournament.

A familiar face
According to WMR, the most likely outcome is that Brazil will be the World Cup winner. The forecast is based on in-depth quantitative analysis that places great emphasis on a country's previous performance at World Cup tournaments. Only seven countries have ever won the World Cup (18 tournaments held to date). And even more surprisingly, just six countries have been represented in the last ten finals.

Germany and defending champions Italy, as multiple world champions, are the two teams alongside record-holders Brazil that are most likely to win the tournament. The importance of past performance is also the reason why the WMR model suggests that Spain, who are tipped by many experts to finally lift the winner's trophy, could exit the competition before the semi-final stage. The host nation will also find life very difficult, with South Africa's campaign likely to hit the buffers in the round of the last 16.

A grain of salt
The model's creator, UBS Chief Economist Andreas Höfert, stresses that forecasts have to be treated with caution: "Successful predictions owe at least as much to luck as to expert knowledge." Four years ago Höfert not only correctly picked Italy as world champions, he also predicted six of the eight quarter-finalists. By contrast, the European Championships two years ago did not pan-out according to his predictions. The European Championships are more difficult to predict as most of the teams are at a similar level.

WMR published its forecasts in a special World Cup edition of the monthly UBS investor's guide. In the special edition, WMR's analysts look at various aspects of football and the economy. The UBS investor's guide also includes an interview with the German national team's chief scout Urs Siegenthaler.

Download and read the entire UBS investor's guide special edition April 2010.