[Viewpoint] Stock-picking the World Cup way

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[Viewpoint] Stock-picking the World Cup way

Price-earnings ratios?

Book value? Charts? They are all perfectly sensible ways of picking stocks to buy. But as the world’s great sporting tournament gets under way in South Africa, how about trying something different - buying shares based on likely winners of soccer’s World Cup.

True, designing a portfolio around soccer rather than financial results isn’t the most scientific way of allocating assets. It’s probably not the kind of approach that gets you on the fast track at Goldman Sachs Group Inc.

Still, there is little question that sporting triumph or calamity can affect national moods, and that in turn might just feed through into the way people spend and invest their money. What impact is that going to have on the markets, apart from the fact that your broker isn’t taking any calls after afternoon games get started?

If not some tangible profit, perhaps pondering the implications might at least return a smile:

If Spain wins, expect the euro to survive. If Germany triumphs, count on it collapsing. Should Brazil collect yet another trophy, make sure you are long on the BRICs. Or if Argentina goes all the way, go big on mining and oil stocks.

Whatever happens, you want to make sure you’ve positioned your investments well ahead of the final, scheduled for July 11.

So, ranked according to the odds quoted by the bookmakers, here are some trades you should be thinking about - depending, of course, on which nation you think will emerge victorious.

1) Spain wins.

Buy the euro. For all the talk about Greece, it is Spain that is the weak link for the unified currency. The European Union can afford to bail out Greece or Portugal if it has to.

But not Spain - it is simply too big. Amid the euphoria of winning their first World Cup, the Spanish will accept any kind of austerity package imposed upon them by Brussels. A bailout will be avoided, and the euro saved - so start buying the currency now.

2) Brazil wins.

Buy the BRICs. Yet another win for the flamboyant Brazilians will remind everyone which countries are the rising powers in the world and which ones are in decline. Of the BRIC nations - Brazil, Russia, India and China - only the Brazilians have a decent soccer team (although the Russians are improving fast). But you can expect to see a big lift for all the BRIC equities, bonds and currencies as investors watch a member of that group celebrate.

3) Argentina wins.

Buy oil and mining stocks. Argentines have a great team, and in Lionel Messi they probably have the finest player in the world right now. But they are managed by Diego Maradona - an eccentric genius with a history of cocaine addiction. If they triumph, investors will draw a simple lesson: management counts for little. What’s important is the raw materials. And with that in mind, they will pile into mining and resources assets.

4) England wins.

Buy the FTSE 100 Index. The U.K. isn’t in great shape. The economy is in tatters. The deficit is as high as Greece’s. Half the banking system has been nationalized. The new government looks unstable. And yet if, by some miracle, Fabio Capello’s team can combine some Italian flair and discipline with English aggression, the country will be reminded that it is always at its best when it is in a deep hole. Expect a huge rise in patriotic determination to sort out the nation’s problems - and a big jump in the FTSE.

5) The Netherlands wins.

Buy dot-com shares. The Dutch started out this tournament in the same state they started every other one, with lots of potential and talent - and just about no chance of turning that into actual results. If the team astounds everyone and actually lifts the trophy this year, investors will draw the lesson that, just sometimes, excitement and skill does translate into profits. They’ll pile into dot-com and technology shares as if it were 1999 all over again.

6) Germany wins.

Sell the euro. The Germans haven’t got a great team, at least not by their historically high standards. But their traditional virtues of discipline, hard work and organization may well pull them through. If so, the Germans will be reminded of the superiority of the Teutonic values of thrift and diligence, and wonder even more than they already do why they have tied their economy to a bunch of layabout Mediterraneans. The euro will collapse before the end of the year - so start selling now.

You might want to allocate a small portion of your portfolio to one of the outsiders winning, or perhaps just making the final. What would happen if the U.S. won the World Cup? Well, you’d want to be short any assets related to baseball, basketball or American football; if America started being any good at the game the rest of the world plays, it wouldn’t need its own sports.

Or how about a South Korea versus North Korea final? Buy defense manufacturers. World War III would probably kick off just as soon as the referee blew the final whistle, though at odds of 250-to-1 and 400-to-1 respectively, it is, thankfully, fairly unlikely.

Finally, if the tournament is a success, as it almost certainly will be, expect to see a rise in all the African markets. Investors will note that African countries are perfectly capable of staging modern, global events and will start taking more of an interest in the potential of the continent.

In fact, that is one outcome you can probably guarantee. And the profits on that trade will hopefully make up for the likely disappointment of seeing your own team on an early plane home.

*The writer is a Bloomberg News columnist.

By Matthew Lynn
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