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UBS model shows Brazil beating Argentina in World Cup final

June 16, 2014

ZURICH – Brazil will win the soccer World Cup that starts next week, according to model run by UBS in response to client demand.

The bank looks at three factors, including past performance and whether teams are playing at home, Zurich-based financial services company UBS said. The third is the Elo rating, a measure of team strength, also used by the international chess federation to rate players.

“Brazil scores high on all three counts,” Andreas Hoefert, chief investment officer in Europe for UBS, said in this week’s newsletter to clients. “It is the top Elo-rated team ever to play in a World Cup, it has won the Cup five times; and obviously it is the host.”

Hoefert came up with the model in 2006 after a cafeteria debate with fellow UBS economists about the outcome of the event that year, he said in an interview from New York on Friday. He first considered a broader range of data for competing nations, before ruling out economic indicators such as gross domestic product and unemployment rates.

“In 2006, I defied expert consensus and forecast correctly that Italy would win,” Hoefert said in a report. “This gave me a bizarre six minutes of fame discussing football as an economist on CNN.”

The UBS model, which didn’t predict Spain’s 2010 triumph, gives Brazil a more than 30 percent chance of winning the tournament, twice that of second-ranked Argentina. The host’s South American rival will vie with Spain to play Brazil in the final, according to UBS, which said West Germany’s 1974 squad is the only top Elo-rated team to have won the cup.

Brazil is placed third in Fifa’s rankings published Thursday, behind Spain and Germany. The home team is expected to meet Germany in the semifinals, after beating Italy in the quarterfinals and the Netherlands in the second round, according to UBS.

The second round “won’t be a walk in the park,” said Hoefert, who crunched the numbers in response to “ample demand” from clients.

U.K. bookmaker Ladbrokes rates Brazil the 3-1 favorite. That means a successful $1 bet brings in $3 plus the original stake. Argentina is 4-1 with Germany at 5-1, according to its website.

The outlook for Brazil would change if Uruguay finishes second in its group or France downs Germany in the quarterfinals, Hoefert said. In that scenario, “Brazil would face two of its historical nemeses before even reaching the final.”

Uruguay beat Brazil on the latter’s home turf to win its second World Cup in 1950. France has defeated Brazil the last three times they met in the World Cup, including the final in 1998.

“One might argue that such triviality shouldn’t concern us bank economists, at least not in our official function,” Hoefert said in the newsletter, which also deals with the U.S. ISM index, China’s manufacturing PMI, and euro-zone negative deposit rates.

Not so. He referred to a recent conversation with Jorge Mariscal, chief investment officer at UBS Wealth Management. Mariscal, he said, pointed out that the World Cup could affect the short-term economic prospects of host Brazil, which is going for a sixth championship. The bank published a report on Friday saying that organizational or athletic failures during the tournament could provoke a popular backlash that could hurt Brazil’s economy and disrupt politics.

Hoefert, who is Swiss, said he’s rooting for his team even though his model shows it only has a 52 percent chance of qualifying for the second round.

© 2014, Bloomberg News

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