Multi-asset

Multi-Asset World Cup 2018: The group stage

As we count down to the FIFA World Cup, you’re invited to join our own international tournament.

So, heading into the Last 16 games, England line up against Japan, while the hosts take on Spain. With new goal criteria coming into play for the Last 16 stage, quarter and semi-finals, the coveted Multi-Asset World Cup is still up for grabs.
Multi-Asset World Cup 2018: The group stage

The 2018 World Cup was supposed to be the year when ”Football came home”. Instead, it is going to Russia, where no doubt England will receive a “warm” welcome. Ahead of the June 14th kick-off we want to bring you the excitement of the World Cup by running our own Multi-Asset World Cup. At least this is one World Cup England stand a chance of lifting.

Each country in our World Cup will compete on a number of economic and financial market criteria, the very same type of criteria that we use in the Multi-Asset team to decide what countries and markets might make good investments. But our World Cup should bring a little more fun.

We have appointed various LGIM colleagues as country coaches, each taking the teams through their paces. Over the next few weeks we will guide you through each stage, all the while providing expert commentary from some of the game’s most respected pundits.

Our World Cup begins with the group stage, with each game based on three criteria. The country with the better assessment on each of our three criteria is awarded a goal. Therefore, a team can score a maximum of three goals in the group stage.

The criteria are:

  • Government debt as a percentage of GDP (the size of the economy). We use the change since the 2014 World Cup. This measure is useful for countries where investment pundits have doubts about government creditworthiness, such as some emerging markets and peripheral European countries. In these cases we’re scouting for low or declining levels of government debt. Falling government debt is likely to see credit rating upgrades.
  • Gini coefficient. Invented by legendary Italian “Statto” (and sociologist) Corrado Gini, this measures income inequality within a country. The greater the income equality, the more stable the country’s likely to be, and incidentally, happier too. A country with large income inequality is somewhat akin to a powder keg just waiting for a spark.
  • Political risk score We source this from the Economist Intelligence Unit (this is not an oxymoron, apparently). All else equal, we want to invest in countries with lower political risk. So no surprises there. Low political risk countries are more likely to avoid defaulting on bonds in our view, and should also experience lower currency volatility. A win-win.

So who are the bookies’ favourites? Of course Germany is up there, with low political risk, low debt level and quite a good Gini coefficient. Coach (and LGIM economist) Erik Lueth’s IMF background means his team will almost certainly go through the first round.

Also looking strong is Portugal: debt levels have been declining sharply so they’ll be dangerous against poor quality competition.

England (as proxied by the UK) haven’t had the perfect qualification stage, with some rising political uncertainty since the 2016 Euros. That said, under new coach Justin Onuekwusi’s shrewd management, the team have been in better form during the run up to the tournament.

For those who like longer odds, consider Bruce White’s Saudi Arabia. Apparently joining the Saudi squad due to his love of desserts, Bruce has a big task ahead of him in this notoriously unequal country.

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