Saxo Bank's equity market World Cup challenge – Colombia to win?

Peter Garnry

Head of Equity Strategy, Saxo Bank Group

For a complete list of five-year price charts for all stocks in Saxo's 2018 Equity World Cup, click here.

It’s summer and it’s 2018 which means that the FIFA World Cup in Russia is about to start. The first match kicks off on Thursday June 14 at 18:00 local time, featuring the host, Russia, and Saudi Arabia, at the Luzhniki Stadium in Moscow. This battle for glory by national football teams from around the globe is mirrored by the battle fought by countries on electronic exchanges worldwide as they compete to be favoured by global investors. In tribute to financial markets and their participants we decided to play a virtual game of our own – welcome to the 2018 World Cup for stocks!

Game rules

Each participating country is represented by a publicly listed stock chosen by SaxoStrats (see country list below) – the main criteria has been the largest market cap stock for each country. For some countries we change the stock because it would likely not reflect people’s perception of the country; for example did we change SAP for Germany to Adidas because the latter is more iconic for Germany and something that relates well to the World Cup because Adidas is a sponsor.

In the cases of Senegal, Uruguay, and Iran we have entered substitutes. Senegal and Uruguay do not have sufficiently liquid stock markets from which  to choose stocks. These two countries will each be represented by a government bond (bullet bond and denominated in USD) with almost the same maturity. In the case of Iran, the trade sanctions mean that we have no access to financial market information from there. As a result we have given Iran the honour of representing the oil market (Brent crude).

The 48 group matches that will be played from June 14 to June 28 will be decided based on the cumulative total return of the instruments with the start date set to June 13 (close prices) and the end date set to the day of the final match (close prices). This means that the stock with the highest total return during these two weeks will most likely win the most matches and win group matches. It is important to note that we judge the companies solely relative to each other based on the total return over the period. As such our updates and comments will not reflect any price targets or recommendations (neither direct or indirect).

We will make our stock predictions continuously and each day we will compare the results from financial markets with the real football results.

In order to avoid commenting on stocks from countries that have not advanced to the knockout matches, we will reset the 2018 World Cup for stocks after the group matches. We will of course track in parallel the pure stock game and tell which country won based on stocks if we had not restarted the game. So in the knockout phase we let the actual countries from the real world battle it out again using cumulative total return with the start date set to Friday 29 June (close prices) and end date to the match day (close prices).

 
Enlarge
Source: Saxo Bank

Believe in momentum, believe in Colombia

The momentum effect (or factor if you will) is well-documented since the 1990s and basically says that stocks that have outperformed will most likely continue to outperform. Based on this observation we have calculated the total return across the stock game universe and ranked them to see which country/stock right now looks the most promising. In turns out that Colombia (Ecopetrol) is the clear winner on momentum with a total return YTD of 46.8% (in USD) with runner-up being Saudi Arabia (SABIC) having 30.9%. Behind the big return in Ecopetrol shares is of course the strong price performance of oil on top of still strong investor sentiment on Latin American equities; well, except for Argentina which is experiencing a capital flight crisis. So despite Messi in real life football, Argentina should have high expectations for our stock game unless we see a big reversal in sentiment.

We will make our final prediction next week on the opening match but our current prediction is that Saudi Arabia (SABIC) will beat Russia (Gazprom).

Enlarge
Source: Saxo Bank

Access both platforms from your single Saxo account.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)