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As you already know the Brasil World Cup 2014 finale will be played between Germany (Developing Market team) vs Argentina (Emerging Market team). In this blog post I just want to take the time and have a look into the economics data and see how the two economies stack up against each other. Last time I've wrote about the World Cup I've applied a carry trade strategy by going long a basket of emerging currency market funded by a basket of developed market currencies and see who would win based on the carry total return points , here is the blog post: World Cup and Forex Exchange Market
In this blog post I'm going to look in tho the economics of both of the countries that made it to the finale, and see who will be the winner. You will be surprised to hear that Argentina is the best performing stock market in the world in 2014 (Year to date) being up over 15% if we compare that with DAX the Germany Stock Index, which has only gain 1.5% (see Figure 1).
Figure 1. Argentina Market Index vs Germany Stock Index
From this perspective it's quite obvious that Argentina leads Germany by 1 to 0. Let's go one step further and if we look on the bond market we can clearly see that Argentina is once again on the verge of defaulting on his debts and the economy is contracting with inflation soaring and price going up about 15%/year, as per the Central Bank of Argentina's figures. In comparison Germany has a strong growth with an annual GDP of 2.5% roughly the same as US economy. Germany has also low inflation with one of the most stable bond market which attracts lots of capital inflow.
It seems that on this category Germany is coming up strong and now the score is 1-1.
Based on the Goldman Sachs research paper:"Average GDP per capita in these two regions(Europe and Latin America)has increased throughout the history of the World Cup, by a factor of 5.6 in Europe and 3.6 in Latin America." This makes Germany to take the lead and win the "match" by 2-1
If in the beginning Argentina economics seems rosy with his Stock market index outperforming, Germany came up strong and has took the lead and won the economics battle.
Best Regards,
Daytrader21
