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Wealth Management Research 21 April 2006
UBS investor’s guide

Special edition
At UBS Wealth Management, we understand that success is the product of design, not
Football World Cup 2006
destiny. So, with the wisdom and resources of a global network we craft an investment
Economists’ view
portfolio together. We meticulously customise your portfolio to meet your needs and And the world champion is …
aspirations, harnessing the most advanced products and services in the financial world.
And then monitor it continually, providing comprehensive expertise. At UBS, our network The 11 performers
of 70,000 people exists for one person alone, an arrangement we like to call “You & Us”. Our World Cup equity team
www.ubs.com
UBS is a premier global financial services firm offering wealth management, asset management and investment banking services to
Abc
individual, corporate and institutional investors. UBS is headquartered in Switzerland and operates in over 50 countries and from all
major financial centres.
Contents Editorial
21 April 2006
Editorial 3 As the climax of that Dear Readers,

most beautiful game,
Economists’ view 4 the FIFA World Cup
Country reports 12 will cast its spell on
fans around the Thank goodness it’s just seven weeks until We will be checking statistical regularities
Recommendations 34 planet and show just the FIFA World Cup kicks off. I don’t know on the stock and capital markets of emerg-
Disclosures 42 what globalisation how things are with you, but World Cup ing countries even more rigorously. It’s
means. Bankers like to score goals too – with impro-
Impressum 43 fever is starting to reach a climax at the worth noting that defeats have a negative
vised means, as in the cover picture, or, more likely,
with professional methods to help them draw up Wellershoff family home. There’s hardly an effect on the markets while victories make
investment strategies and concrete recommendations. evening meal that goes by where we don’t no difference at all. It seems a bit of a shame
discuss whether Cissé is from the Ivory when you think about it if you consider that
Coast or from France, whether Buffon or 31 of the 32 participating countries will
Casillas is the best goalie, or whether the have lost by the end of the tournament. Os-
Brazilians will make it to the final again. car Andreu is somewhat more optimistic in
Four sons and one dad – my poor wife. this respect: in his article he presents his top
The whole thing was set in motion by the eleven – eleven shares that stand to bene-
inevitable appearance of World Cup collec- fit from the FIFA World Cup over the course
tors’ cards. By the way, this is also an inter- of the next few months.
esting economic phenomenon and I was Have fun reading a not-entirely-serious
able to hold an almost philosophical discus- special World Cup edition of the “UBS
sion on the terms “value” and “price” with investor’s guide”!
my 12-year-old. What is the value of a foot-
ball card with Ronaldinho on it? Packet
price divided by the number of cards per
pack? The ten-year-old even wanted to try
using arbitrage. In Appenzell five cards cost
80 centimes, in Zurich they cost 90.
While my sons are busy collecting diver-
You will find a comprehensive
sified portfolios of football cards, we once
glossary of technical terms on the
again dedicate ourselves to more serious
internet site
issues – in this case, our profession as
www.ubs.com/1/e/about/bterms.html Yours, Klaus W. Wellershoff
forecasters. In his focus article, in this spe-
cial World Cup edition of the “UBS in-
vestor’s guide”, Andreas Höfert attempts
to use statistical methods to determine
Details regarding the information contained in this publication, restrictions on distribution and other legal consid- the outcome of the tournament. His pre-
erations are given on pages 42 and 43.
diction: Italy will lift the FIFA World Cup.
In all cases we advise anyone interested in selling or buying a product or financial market instrument mentioned We are on the edge of our seats waiting
in this publication to consult their client advisor first.
to see whether the otherwise accurate
Price information for more than 600,000 financial market instruments is available at www.ubs.com/quotes. head of our economics team has over-
Photo: Matthias Tunger/primsa done it this time.
UBS investor’s guide special edition April 2006 3

Economists’ view Economists’ view
And the world champion is... the above countries (Brazil, Germany and A similar phenomenon is evident when
Italy) occupying 40% of all slots, and sev- considering the continent of the winning
en countries (the previous three plus Ar- team. The traditional duel of Latin Amer-
«Economic analysis: neat tools applied to dirty data, gentina, France, Sweden and Uruguay) so
far taking up two thirds of all places in the
ica against Europe, played out since 1930,
is most probably set to continue into its
Sport analysis: dirty tools applied to neat data.»
penultimate round. eighteenth round at this year’s FIFA World
Anonymous, 2006 Cup. The Latin American nations are cur-
It is of course a great privilege to be able rently 9:8 ahead, with all FIFA World Cups
The question of who will be the next world champion is a topic of endless dis- to take part in such a tournament. Seven- ever held there won by one or other of
cussion among the countless fans of that “most beautiful game”, football (or ty-five national squads have so far man- them. European teams have so far won
“soccer”, if you will). Trading at betting shops is booming, and if you take their aged to make history by winning the 361 eight of the nine FIFA World Cup tourna-
figures as a benchmark of the economic risk people are prepared to take, then World Cup places. This is not as many as ments held in Europe. Brazil has won once
Brazil will beat England, Germany and Argentina into the top slot. Italy and it seems though, as FIFA now has a mem- in Europe (1958 in Sweden) and has also
France are hot tips according to those in the know. bership of more than 205 national teams. won the two FIFA World Cups held in
A small elite has also arisen among partic- “neutral territory” (1994 in the USA and
ipants in the FIFA World Cup. Brazil, Ger- 2002 in Japan/South Korea). We have
many and Italy have managed to secure therefore awarded a “Brazil bonus” in the
Interestingly er rating than perhaps deserved. From 13.9% (of a maximum 14.9%) of all start- final rounds.
enough, this fore- a subjective point of view we consider ing places. Ten teams have snapped up
cast does not match the fact that Brazil, Germany, Argentina, 40% of all allocated places, and 25 some The economy hardly plays its part
up with FIFA’s rank- and Italy hold the top spots to be largely 75%. In view of the sporting variables in force,
ings. Brazil is unde- rational, despite the miserable perform- no one socio-economic factor can be pin-
niably the world ance of some of these teams. But is this Home turf often helps pointed in favour of one team winning.
number 1, the num- also justified? To be able to answer this Based on this assumption, not every coun- We have calculated various estimates
ber 2 spot is how- question positively, we need to draw on try has the same chance of winning the from demographic data (population size
Andreas Höfert ever occupied by statistics and econometrics to provide us World Cup – some have definite advan- to indicate the potential talent pool, aver-
the Czech Republic, with a possible FIFA World Cup scenario. tages. What’s more, the home team has age age of population, number of urban
ranked a respectable tenth by betting one definite advantage. Six of the seven- dwellers as a percentage of the total, birth
shops. FIFA’s number 3 rank is held by An exclusive club teen FIFA World Cup titles so far have rate etc.) and macroeconomic variables
Paraguay, which occupies positions 19 to FIFA World Cup winners make up a fairly been won by the host country. If every (GDP per capita, average growth in the
23 if you follow the betting shop system. exclusive club. While 2006 will see the participating team were to have the same last five years, inflation, unemployment
England is ninth in this world ranking and hosting of the 18th FIFA World Cup, so far chance, then the statistical likelihood of rate etc.), with the result that neither one
Germany… well, according to the FIFA list only seven countries have succeeded in the host team winning would be a mere nor the other of the variables has a par-
they are going to have a tough time get- lifting the cup. Three of which (Brazil, Ger- 0.0011% of all possible cases, an irrele- ticularly noticeable effect on the result.
ting through to the last sixteen. We, all of many and Italy) make up two thirds of all vant result if you allocate every host team This shouldn’t really come as a surprise as
us self-proclaimed football experts, aren’t World Cup titleholders, and five (the pre- a prior probability of 33% of winning it would be hard to identify a common
quite at ease with the FIFA rankings. We vious three plus Argentina and Uruguay) “their” World Cup. The home advantage socio-economic denominator for Brazil,
would rather place our trust in the betting almost 90%. Semi-finalists are also in a therefore gives Germany a definite edge Germany and Italy. Unfortunately, it is not
shops. As the internet’s betting shops are class of their own: 24 countries have so in the competition. possible to directly quantify the degree of
almost entirely British, England has a cer- far managed to grab at least one of the “football craziness” in these countries.
tain “home bias” and a somewhat high- 68 semi-final places on offer, with three of
4 UBS investor’s guide special edition April 2006 UBS investor’s guide special edition April 2006 5
Football yesterday and today held since 1986 were included. For quali- • Our model has correctly predicted 70% ities. We will however back the teams
As proposed above, an exclusive club of fication for the semi-finals and finals of the winners of all quarter final with the marginally higher probability,
teams has formed as a result of the FIFA as well as for the winner, the data of all matches of the previous five FIFA World in this case Germany, France and Eng-
World Cup. This is not only subjectively FIFA World Cups held since 1970 were in- Cups; 17.5% of other games were in land.
cluded. Besides the probability deter-
evident; it also serves as a useful statisti- the range of inexactitude, i.e. the rela-
cal tool. Two variables are relevant in al- mined by the model, the results of direct tive probability for the winner was be- • Our method has correctly predicted
most all simulations: the number of FIFA encounters involving the 16 finalists in tween 45% and 55%. Only 12.5% of 89% of all semi-final winners from the
World Cup participants and the number the last ten years were also taken into ac- the matches were incorrectly predicted. last nine FIFA World Cups. Only Argenti-
of qualifications for the semi-final. count. We gave this factor one third of the The greatest upsets for our model were na’s win over Italy to reach the final in
weighting, and the results of the model the qualification of South Korea against 1990 has to be recorded as an error by
These “historic” variables are joined by two thirds. Italy in 2002, which was astounding the model. It is however much easier to
two of more recent origin. The first is the even when taking the home advantage predict the finalists than the semi-final-
number of outstanding players in a team. Let’s start with the first round into account, Senegal’s win over Swe- ists. If we’ve been right up until now
We didn’t of course calculate this variable Table 1 lists the teams that have made it den in 2002, and Romania’s victory (which probably isn’t true), then Brazil
ourselves, but left it to a seasoned expert through the first round as well as all qual- against Argentina in 1994. According will beat Holland and Italy will win
by the name of Pelé. In 2004 he published ification probabilities and the five hot out- to our simulation, in 2006 only the “tra- against Argentina.
his own list of the 120 best living foot- siders. Groups C (the “group of death”), ditional” teams, i. e. six of the seven
baller players. And 30 of these stars will D, E and G will be particularly interesting. previous world champions (history mat- • Brazil or Italy? The Europeans and the
be lining up at this year’s FIFA World Cup. Our model has worked successfully for be- ters!) along with Holland and Spain, will Latin Americans have faced each other
The second variable was the “Elo rating” tween 13 and 15 of the last 16 from the make it through to the exclusive last 16. twice (in 1970 and 1994) in the final.
of the teams in the March before each FI- previous five World Cups. The biggest sur- However, our probability model speaks
FA World Cup. In contrast with the FIFA prises for the model to date were France’s • Our method has correctly forecast 65% in favour of the Italians. Brazil is the on-
ranking, which does not weight the early exit in 2002 and Spain’s in 1998, and of all winners of the quarter final ly team to have won FIFA World Cups
teams’ wins and losses, the Elo rating – the successes of Costa Rica and matches for the previous five World outside its home continent, but the
named after the US-Hungarian physicist Cameroon in 1990 and Morocco in 1986 Cups. A further 10% were in the range special “Brazil factor” easily tops the
and chess player Arpad Elo – is used to as- in making it to the last 16. of inexactitude, and 25% of results home-continent factor. So this means
sess chess masters and works on the prin- were incorrectly predicted. The largest Italy will be world champions.
ciple that winning against Brazil is a Sudden death errors produced by the model (and thus
greater achievement than beating Andor- For the 16 teams that survive the pre- greatest performance of the winning But wait a minute! How certain is such a
ra, a home victory is worth less than an liminary round, we have taken calculated teams) were the victory of Bulgaria forecast at the end of the day? When we
away win, an 8:0 win is worth more than probabilities from the preliminary round against Germany in 1994, and Croatia follow Italy’s route back to the first round,
a 1:0 victory, and qualifying for the World to ascertain who will win or come second against Germany in 2002, along with they only have a 9% chance of winning
Cup counts more than a friendly match. in their group. Brazil, Spain, France and Brazil’s ouster by France in 1986. As a the FIFA World Cup. This is in fact three
With the aid of a Probit model (an esti- according to the model, Germany are result of this, the quarter finalists that times more than 1/32, but it’s still very
mate used to express the probability of an more or less certain to go through. Due will make the semi-finals are the most low. This is of course where the charm of
event actually happening), the game plan to their varying strengths, this procedure difficult to forecast. Only a win for Brazil the tournament lies. To win the title re-
of the FIFA World Cup was determined is not as conclusive for teams in the oth- against Spain seems to be a foregone mains an infrequent event full of excite-
by specifying and assessing a new model er groups. Table 2 shows how the FIFA conclusion at this year’s FIFA World ment. At the end of the day, the Greeks
for each round. For the first round (play- World Cup will continue after the first Cup. Germany-Argentina, Italy-France can teach us a thing or two – and not their
ing for the last 16 places) and the quar- round. and Holland-England also appear to philosophers, but their football players,
terfinals, the data of all FIFA World Cups demonstrate similar predicted probabil- who succeeded in winning the European
Championship in 2004 despite being ap- 2 nd round and probability to win in %

parent no-hopers according to this elabo-
rate forecasting model.
andreas.hoefert@ubs.com Germany 70 Argentina 60 Italy 80 France 80
Sweden 30 Portugal 40 Croatia 20 Ukraine 20
Germany 46 Italy 53
Argentina 54 France 47
Argentina 43
Italy 57
1st round and probability to make it

to the 2nd round in %
Group A Group E Italy 54

Germany 88 Italy 72 Brazil 46
Poland 53 Czech Republic 63
Costa Rica 32 USA 52
Ecuador 27 Ghana 13
Group B Group F
England 74 Brazil 75 Netherlands 22
Sweden 66 Croatia 56
Brazil 78
Paraguay 45 Japan 36
Trinidad & Tobago 15 Australia 32
Group C Group G
Argentina 65 France 84
Netherlands 61 Switzerland 57
Serbia & Mont. 47 Korea Republic 48
Netherlands 53 Brazil 73
Ivory Coast 27 Togo 11 England 47 Spain 27
Group D Group H
Mexico 76 Spain 84
Portugal 61 Ukraine 56
Iran 48 Tunisia 36
Angola 15 Saudi Arabia 25 England 65 Netherlands 75 Brazil 70 Spain 70
Bold = qualified Poland 35 Mexico 25 Czech Rep. 30 Switzerland 30
Bold orange = hottest outsider
Source: UBS WMR, see page 42
Source: UBS WMR, based upon appendix
Group summary Group summary
Group A Germany
Germany, for once, is not a real favorite in it’s own world cup
Possible ranking: Reaching the quarter finals is possible
Costa Rica
The “Ticos” have already surprised once in 1990.
Possible ranking: Passing the first round is not out of reach
Poland
Not the marvelous Poland of the 80s, but still a favorite within the group
Possible ranking: Reaching the eighth-finals for certain, after-
wards it becomes difficult
Ecuador
On paper the weakest team of the group
Possible ranking: Probably they won’t make it to round 2
England
Group B As usual high expectations. Will the nerves hold this time?
Possible ranking: Quarter- or Half-final
Paraguay
A serious contender. England and Sweden should pay attention.
Possible ranking: Could make it to the second round
Trinidad & Tobago

The Tom Thumb of this year’s World Cup
Possible ranking: Elimination in the first round
Sweden
Traditionally a strong team at the World Cup
Possible ranking: Surprises in the second round are possible
Country reports Country reports
Germany Costa Rica Poland Ecuador

After years in the doldrums, economic The second-smallest participant in the FIFA Poland has no interest in a strong German For a long time, Ecuador has been famous
sentiment in Germany has picked up World Cup™ in terms of population is of- football team. This is because the Polish for its political instability (with18 different
markedly in recent months. Ongoing wage ten underestimated if it is perceived at all. team will compete against the co-favourite constitutions since 1830), its banana and
moderation has boosted price competitive- Yet the per capita income of Costa Ricans Germany during the World Cup qualifiers. oil exports rather than for its soccer team.
ness of German manufacturers, allowing is higher than in Brazil and even slightly The Polish economy, on the other hand, is However, this year’s participation at the
them to take full advantage of robust glob- above that of Mexico. Costa Rica is tradi- highly dependent on Germany being on top World Cup is the second in a row bringing
al demand. Even the consumer sector – the tionally associated with coffee and ba- form economically. One percent of invest- the country to the 38th position in the
traditional Achilles heel of the German nanas. These two products now only ac- ment growth in Germany can boost Polish Fifa ranking. While the mountainous An-
economy - is showing some timid signs of count for 12 % of the nation’s total export gross domestic product by around 0.4%, dean part of the country creates infrastruc-
life. Consumer sentiment has been rising volume. Now, Costa Rica’s principal export through direct investment of German com- tural challenges, the altitude might have
gradually, albeit from a very low level. Clear- is microchips, which account for an as- panies in Poland as well as through in- helped the team to remain unbeaten in
ly, a victory at the World Cup would provide tounding 15% of all exports. The main con- creased demand for Polish export products. Quito throughout the qualification cam-
a welcome further boost to confidence. cerns of this Central American economy are So far, Poland has lost nothing, because in- paign.
With three wins under their belt, Germany highly unstable public finances and a dol- dependent of the results of the Football The country adopted the dollar in 2000
can look back at an impressive World Cup lar-pegged currency system, which could World Cup, Polish GDP will once again rise in the aftermath of a severe economic
record, and the home field advantage slide into crisis at any time, considering the by around 5% in 2006. While in 2004, crisis – establishing a solid anchor for previ-
should help them win Group A. Even if a 10% inflation rate. Despite this, the coun- Poland’s entry into the European Union ously soaring inflation. After being absent
team like Argentina were to prove an try has fairly good prospects, with anticipat- generated momentum for strong growth, from international financial markets for
insurmountable obstacle for the young Ger- ed growth for 2006 at 4-4.5%. the development significantly stagnated in several years, it successfully placed a new
man squad in the quarter finals, an expect- Even in sporting terms it would be unwise the past year (+3.2%). During the World bond last December. Nevertheless, a weak
ed 3.5 million football fans should leave to underestimate the “Ticos”. In 1990 they Cup year, the construction and investment president, a shaky political environment,
a positive imprint on the host nation’s econ- made the first round, beating such teams as sectors in particular will be attacking on the continuous spending pressure and tight
omy this year. Sweden and Scotland. So watch out Ger- flank, increasingly supported by private liquidity require investors to be prudent.
dirk.faltin@ubs.com many! consumption, which is gaining ground christoph.arnold@ubs.com
andreas.hoefert@ubs.com thanks to falling unemployment.
simone.hofer@ubs.com
Key facts Germany Key facts Costa Rica Key facts Poland Key facts Ecuador
GDP per capita (PPP, in USD) 30 150 GDP per capita (PPP, in USD) 10 316 GDP per capita (PPP, in USD) 13 440 GDP per capita (PPP, in USD) 4 297
GDP growth (avg. 5 years, in %) 0.7 GDP growth (avg. 5 years, in %) 4.2 GDP growth (avg. 5 years, in %) 2.9 GDP growth (avg. 5 years, in %) 4.5
Inflation (avg. 5 years, in %) 1.5 Inflation (avg. 5 years, in %) 10.9 Inflation (avg. 5 years, in %) 2.3 Inflation (avg. 5 years, in %) 7.3
Population (in millions) 82.5 Population (in millions) 4.3 Population (in millions) 38.5 Population (in millions) 13.2
Median age 41.2 Median age 26.1 Median age 36.5 Median age 24.0
FIFA ranking 22 FIFA ranking 25 FIFA ranking 26 FIFA ranking 38
World Cup participations 15 World Cup participations 2 World Cup participations 6 World Cup participations 1
Tables: see page 42 for explanations and sources
Trinidad &
England Paraguay Tobago Sweden
A World Cup win for England could be use- With a per capita income of USD 1150 in The two Caribbean islands Trinidad and Were there a European Cup for the best
ful for the whole of the UK. Amazingly, 2005 and approx. 6.5 million inhabitants, Tobago form a nation with a population economic situation, the Scandinavians
there is statistical substance to the claim Paraguay is an economic flyweight in the of only 1.3mn people and a strong energy would no doubt be in the final. The experts
that a World Cup victory enhances the eco- South American context. Players on the fi- sector that accounts for approx. 40% per- at NIER, the Swedish National Institute of
nomic growth of the winning finalist. Is this nancial markets will scarcely be aware of cent of GDP and over 80% of exports. Economic Research, sum the situation up
merely fortuitous? Is it just that the four the country, unless they are avid meat While high oil prices are reinforcing Trinidad as follows: “The Swedish economy is cur-
year gap between World Cup tournaments eaters. The agricultural sector generates & Tobago’s balance of payment and con- rently enjoying a positive spiral of healthy
is perfectly timed to coincide with the peaks some 30% of GNP; in export terms, this fig- tributing to a fiscal surplus, it also raises growth, an improving labour market and
in the business cycle? The link between ure is even in excess of 75%. In terms of inflationary pressure. Containing inflation low inflation.” This uniquely unproblemat-
growth rates and goals is a tenuous one, growth, Paraguay and Uruguay brought up remains a future challenge. If real GDP ic situation, without parallel in Europe, is
but there is some appeal in the notion that the rear in South America from 2001 to growth were an indicator for the perform- likely to continue throughout 2006, with
the feel good factor that follows a victory 2005. The same cannot, however, be said ance of the football team, Trinidad & Toba- estimated average growth of 3.5% and a
actually boosts consumer sentiment. What- of football. Paraguay reached the last 16 at go would be among the favourites with an forecast rate of inflation significantly be-
ever the causality, the UK consumer could the 1998 and 2002 FIFA World Cups: impressive average GDP growth rate of low 2%.
do with an excuse to feel more positive. The a result that many economically heavy- 7.5% over the last five years. However, on The chances of success of the tradition-
consumer-driven recovery that we were weights can only dream of. But even in the football field when confronting long- steeped team from the north (it has been a
previously expecting for this year is looking cyclical terms, 2005 was highly promising. established and experienced teams and as World Cup finalist once and a semi-finalist
less vigorous, in spite of a buoyant housing Fiscal consolidation is proceeding with a the last team to book their ticket to Ger- three times) may not be quite as good as its
market and demand for mortgage equity rising primary government surplus and many and newcomer in the World Cup, the economic situation. Nevertheless, with ace
withdrawal. It seems as though a deterio- a stable debt ratio. Paraguay’s ambitions Caribbean team will have to leverage: on striker Zlatan Ibrahimovic and heartthrob
ration in job security lies at the heart of are not just confined to football. their renowned Dutch coach Leo Been- Frederik Ljungberg, there are some sound
a less confident consumer, making this a dominic.schnider@ubs.com hakker and the ex-scorer of the unbeatable and attractive arguments in favour of the
trend worth watching more closely. Manchester United of 1999, Dwight York Swedes coming off well.
angus.pearson@ubs.com oliver.futterknecht@ubs.com andreas.hoefert@ubs.com
Key facts England Key facts Paraguay Key facts Trinidad & Tobago Key facts Sweden
Inflation (avg. 5 years, in %) 1.4 Inflation (avg. 5 years, in %) 7.4 Inflation (avg. 5 years, in %) 4.4 Inflation (avg. 5 years, in % 1.6
Group C Argentina
One of the favorites
Possible ranking: Could well make it to the final
Serbia & Montenegro

Unfortunately in a very strong group
Possible ranking: A qualification for the second round
is already an effort
Côte d’Ivoire
Would be a co-favorite in an easier group
Possible ranking: It will be very difficult to make it through
the first round
Netherlands
The other favorite of the tournament in this group
Possible ranking: If it doesn’t run into Brazil in the half,
could make it to the final
Group D Mexico
Traditional team, which is unfortunately always eliminated early on
Possible ranking: Elimination in the Eighth-finals
Iran
Far less exotic than it seems; could surprise
Possible ranking: Second round is feasible
Angola
First time in the World Cup
Possible ranking: Chances of making it to the second round
are low
Portugal
The outstanding team of the past ten years is getting older
Possible ranking: Qualification for the second round should be
a piece of cake, afterwards it will be more difficult
Serbia &
Argentina Montenegro Côte d’Ivoire Netherlands
As a famous football nation, Argentina’s Serbia and Montenegro has a challenging Qualifying for the World Cup finals for the The Dutch soccer team again enters this
prospects in this World Cup arguably look year ahead. Next to the preparations for first time was a huge surprise – after all tournament as one of the favourites, as
much better than the longer term eco- a referendum on the independence of Cameroon, considered to be a far stronger it occupies the 3rd position in the FIFA
nomic outlook. On the back of very high Montenegro, the political agenda also con- competitor, was eliminated. In political and ranking. But its track record would suggest
GDP growth rates over several years run- tains the highly sensitive issue of the status economic terms, however, the situation that it will fail to deliver, again. We can
ning, Argentina has chosen to retain pro- of Kosovo. remains unsettled. After the failure to hold draw a striking parallel with Dutch eco-
cyclical monetary policy, even in the face of Economically, high inflation coupled with elections scheduled for October 2005, nomic growth. Despite high expectations,
persistently high and rising inflation. At the a current account deficit at around 10% the UN Security Council felt compelled to economic growth over the past 5 years
same time, heavy intervention in the curren- of GDP will likely force the government intervene: President Laurent Gbagbo was has been an underwhelming 0.6% p. a.,
cy markets has succeeded in keeping the to tighten fiscal policy in order to curb granted a one-year extension of office, only surpassed on the negative side by
Argentine peso at artificially cheap levels in domestic demand. Whereas growth has simultaneously losing the bulk of his exec- countries such as Argentina, Germany and
a bid to support its export lead recovery. been solid in export-oriented industries, it utive power to the new Prime Minister Portugal. The high expectations were due
The government’s willingness to inter- remains lacklustre in many unrestructured Charles Konan Banny. Considerable effort to a fairly liberal economic policy, but the
vene aggressively in the economy is an im- enterprises. Within this foggy outlook, on the part of the international communi- “Polder model”, or consensual relationship
portant cause for concern for the long-term the performance of the country’s soccer ty will be required to prevent a widening between unions, government and employ-
outlook. For example, coerced price agree- team shines like a bright star. Undefeated of the rift between the political camps of ers was maintained. The resulting high tax
ments and export bans indicate that short- throughout the qualifiers, the team is said Gbagbo and Banny. Positive economic sti- rate most probably slowed the economy
term political objectives are given priority to have one of Europe’s strongest defence muli are unlikely in the immediate future down. The consensus expectation is, in line
over allowing market forces to work effi- lines – always good for a positive surprise. owing to the strained and hence uncertain with FIFA’s optimistic ranking of the Dutch
ciently. While economic activity may remain christoph.arnold@ubs.com political situation. Growth for 2006 is ex- soccer team, for Dutch growth to pick up
at elevated levels over the shorter term, the pected to be a mere 1.2%. again to 2.4% this year, almost matching
sustainability of the current recovery ap- Felix Brill the OECD average of 2.6%.
pears very questionable. hans.sanders@ubs.com
stefan.hofer@ubs.com
Key facts Argentina Key facts Serbia & Montenegro Key facts Côte d’Ivoire Key facts Netherlands
GDP growth (avg. 5 years, in %) 0.3 GDP growth (avg. 5 years, in %) 3.3 GDP growth (avg. 5 years, in %) –0.1 GDP growth (avg. 5 years, in %) 0.6
Mexico Iran Angola Portugal

Mexican voters head into general elections With President Ahmadinajad at the helm, Angola – the second-largest oil-producing Taking the qualifying rounds as a bench-
in July, and at this stage, there is probably a novice in national politics with no inter- nation south of the equator – is not only mark, Portugal would have to be among
more consensus on Mexico’s chances of national experience, Iran looks set to be booming in economic terms. World Cup the favourites. A goal difference of 35:5
winning the World Cup than which party increasingly isolated on the world stage. fever has taken hold of the nation’s foot- and 7 points ahead of the second-ranking
will emerge as the dominant force. Former Unlike most other oil exporting countries, ball fans. Based on the team that won the team, Slovakia, speaks for itself. After
leftist Mexico City mayor and PRD candi- Iran has saved little of the oil revenue wind- 2001 African under-20 championships, reaching the final at the last European Cup
date Lopez Obrador has consistently main- fall. Indeed, expenditures have been rising thus qualifying them for the under-20 played at home, the coming tournament
tained a lead over the PAN’s Felipe Calderon almost as fast as revenues, as the govern- world championships in Argentina, coach could be a glorious climax for the “golden
and the PRI’s Roberto Madrazo, but there is ment attempts to keep popular discontent Goncalves has succeeded in putting togeth- generation” surrounding Luis Figo. A result
far less clarity on what the balance of pow- at bay. er a strong eleven team. In 2005 this en- like this could breathe fresh wind into the
er in Congress will be. It is not clear how long current policies abled Angola to qualify for the World Cup economy. The second EU deficit proceed-
Mexico’s strong economic institutions can be sustained. Oil prices cannot contin- instead of favourite Nigeria. In economic ings within only three years have upped
help mitigate concerns regarding a possible ue rising as fast as they have during the last terms, the country is currently benefiting the pressure on the government to sustain-
worsening of the political environment. In two years. This means that the government from the rapid growth of oil production. ably consolidate the budget and tackle
particular, Mexico’s solid monetary and will be unable to continue increasing spend- The IMF estimates that Angola’s economy other urgently needed reforms. Measures
fiscal policy performance, coupled with its ing. With a very young and rapidly increas- will grow at an average rate of 18% be- to date have, however, resulted in a spate
active sovereign liability management, illus- ing labour force, little reform and an tween 2005 and 2007. However, non-oil of public protests. Discontent is bolstered
trates the strong strides made in the past anaemic private sector, unemployment will sectors are developing only sluggishly, as even further by the negative trend in the
years. That said, a divisive election outcome start increasing, raising political pressure on the country is still suffering from the after- labour market in recent years. Since there
will lower the prospects for structural re- the government. Two events can help effects of the long civil war that ended in is very little inpetus from exports, Portugal’s
forms in Mexico, raising longer term risks to reduce such pressure in the short term: 2002. In addition, the abundant oil rev- economy is likely to face a hard time follow-
the outlook. the political diversion of a showdown with enues are easing the pressure on the gov- ing the path of past sporting successes.
stefan.hofer@ubs.com the international community over nuclear ernment to rapidly implement plans for Felix Brill
energy, or the “feel good” factor of a good more stable and transparent general eco-
performance in the World Cup. The latter nomic conditions.
appears less likely. daniel.kalt@ubs.com
oussama.himani@ubs.com
Key facts Mexico Key facts Iran Key facts Angola Key facts Portugal
Median age 25 Median age 23.4 Median age 16.6 Median age 39.4
Group E Italy
The underrated favorite
Possible ranking: Final
Ghana
A priori the weakest team in the group
Possible ranking: Not very likely to make it to the second
round
USA
Is becoming stronger with each World Cup
Possible ranking: Hottest outsider for making it to the second
round
Czech Republic
Very strong team, which could go far
Possible ranking: At least in the Eight Final
Group F Brazil
Comments are superfluous
Possible ranking: Final
Croatia
Not as strong as in 1998, but profiting from an easy group,
despite Brazil.
Possible ranking: Eighth Finals
Australia
Not much more than just exotic
Possible ranking: Won’t make it into the second round
Japan
Not playing at home this year
Possible ranking: Brazil and Croatia seem out of reach
Czech
Italy Ghana USA Republic
With zero GDP growth last year, the Italian Having won the African Championships The US is a country of superlatives. It is a There’s no ignoring the ambition of the
economy has booked a firm slot at the bot- four times, Ghana’s qualification for the military leader, a political superpower and Czechs: the Czech football team is number
tom end of the Eurozone GDP growth World Cup was long overdue. The success an economic powerhouse. The US econo- two in the FIFA world ranking list, right
league table. The external environment is of star striker Michael Essien and his young my features strong productivity gains, a behind world champion Brazil. The Czech
developing favourably and GDP growth is team is attributable to trainer Ratomir flexible labour market, and highly devel- Republic is not just strong when it comes to
expected to accelerate to about 1% this Dujkovic’s style, which is founded essential- oped capital markets. But as a tenet of eco- football, as its key macro-economic data
year, which, compared to an average ly on discipline. Discipline will also be need- nomic theory states: “everything has its are not lagging far behind the Football
growth rate of only 0.4% in the past four ed when it comes implementing the eco- price”. One price the US pays to be on top team. With a growth rate of more than 6%,
years would seem like quite a brisk pace of nomic reforms adopted by the government. of the world economic ladder is a huge cur- the country’s economy also holds a top po-
expansion. The Italian economy is plagued Thus, the private and agricultural sectors rent account deficit of 7% of GDP, coupled sition in global comparison. A significant
by structural deficiencies, which have seen are to be supported in order to consolidate with fading sources of domestic financing. contributing factor was the country’s rising
a constant erosion of global competitive- the positive economic growth experienced While overall US economic fundamentals foreign trade. Given the overall accelerated
ness in recent years and it remains to be in recent years. High inflation, on the oth- are sound, the lack of domestic savings is a growth in Western Europe, the recent eco-
seen whether the new government can rec- er hand, is still a major bugbear and one latent risk that in our view will start to take nomic boom is not expected to level off just
tify the problems. At the World Cup, the that is being further aggravated by high oil its toll on growth in 2006. Similar to its eco- yet and interest rates are expected to con-
Italians will face strong competition in prices and an expansive fiscal policy. How- nomic prowess, the US has managed to tinue to rise. Although the rise in prices has
Group E, but their tough defence and po- ever, in combating inflation, the central build up a world class soccer team (soccer so far been moderate, the inflationary pres-
tent strike force should secure them a place bank faces the problem that it must not is an abbreviation for Association Football, sure is imminent. This pricing pressure is
on top of their group. Unfortunately, the curb credit demand too strongly, so as not formed in 1863). Its FIFA ranking improved partly softened by the strong appreciation
midfield is the missing piece in the jigsaw, to counteract the government’s economic from 28 in 1993 to 5 in 2006. The price to potential of the Czech Koruna (CZK). As the
and without more guile and playmaking in reforms. pay? For soccer fans, no price is high EU continues to converge, the CZK is set to
this position, the Azzuris will have a tough Felix Brill enough. appreciate further.
time. They are nevertheless one of the thomas.berner@ubs.com dominic.schnider@ubs.com
favourites.
dirk.faltin@ubs.com
Key facts Italy Key facts Ghana Key facts USA Key facts Czech Republic
Brazil Croatia Australia Japan

Brazil enters the 2006 presidential election The memory of Croatia’s legendary rush to Australia counts among the so-called pri- Having been in the throws of an economic
cycle in defensive mode – with local inter- the semi-final in its first FIFA World Cup ap- mary producing countries, despite the fact crisis for more than a decade, nobody
est rates at such high levels that, this time pearance in 1998 remains vivid. Similarly that it has a diversified economy with really expected Japan to make a sustained
around, it will be just too expensive to bet impressive is the rapid economic upturn strong industrial and service sectors. Yet recovery. But like a Phoenix rising from the
against the currency. Such cautious stance the country has experienced in the wake the raw-material sector does play a more ashes, Japan has recovered in the past few
is in sharp contrast to the strategy the of a turbulent decade. Thanks to a strong substantial role than in other developed years and is as strong as ever. The banking
Brazilian National Team will be pursuing in tourism sector and the establishment of nations. The country is now reaping the system has largely eliminated the non-per-
the 2006 World Cup. There, strikers such as internationally competitive textile and benefits of this position, too, as the de- forming loans which stemmed from the
Ronaldinho, Ronaldo, Gaúcho, Cacá and chemicals industries, the country has man- mand for raw materials has increased real estate crisis and are once again back on
Adriano will focus on scoring goals – rele- aged to achieve average GNP growth sharply. This is the reason behind Australia’s track. Years of deflation seem to have come
gating defence strategies to a secondary of 4.4% over the past five years. Today many years of strong growth figures, and to an end and with it the zero interest rate
role. Croatia is a candidate country for EU mem- why the Reserve Bank of Australia had policy of the central bank. Only national
And yet, when dealing with the Brazilian bership, yet it must still overcome some to put the brakes on the economy as far debts have not seen any improvements and
economy, playing defensive is good news. hurdles. Government intervention is still back as the end of 2003 to stop it from a great deal of effort is needed to reverse
Brazil has a dreadful track record of reac- the order of the day, and the privatisation overheating. This year all the signals are the current trend. Nobody is really counting
tions to political shocks, with asset prices of state-run companies is challenging. once again set to green, and we expect on Japan when it comes to the final round
oscillating violently during an election cam- Howeve, reforms are a high priority, with commensurate growth. The World Cup is of the Football World Cup. But the same
paign. Will it be different this time? We the result that Croatia could become a full not likely to inspire tremendous interest was true with regard to its economy. The
think so – at least on economic grounds, member of the EU as early as 2009. In the Down Under, even though the country country was almost written off. Perhaps
where we expect asset price volatility to be meantime, Croatia can wow sports fans in is fielding a team for the first time in a long Japan will surprise us with more than just
tamed. In football terms, however, Brazil Germany with its national team: Its strong time. Football is not one of the most popu- its economy.
will keep on playing offensively and will re- midfield combined with striker ace Dado lar sports in Australia. Thus, Aussie “soc- hans-peter.hausheer@ubs.com
main the major contender for the Cup. Prso mean that Croatia is well on its way cer” fans are likely to be more enthusiastic
paulo.tenani@ubs.com to realising its ambitions. about an Australian Football League match-
dorothea.froehlich@ubs.com up between Carlton and Collingwood than
about the World Cup final.
hanspeter.hausheer@ubs.com
Key facts Brazil Key facts Croatia Key facts Australia Key facts Japan
Inflation (avg. 5 years, in %) 8.2 Inflation (avg. 5 years, in %) 2.5 Inflation (avg. 5 years, in %) 2.9 Inflation (avg. 5 years, in %) –0.5
Switzerland
Group G One of the best Swiss teams ever
Possible ranking: Eighth Final is feasible, everything afterward
is a bonus
France
A better World Cup than 2002 is likely, but the winners of 98 are
eight years older
Possible ranking: At least the quarter finals
Korea Republic
Always a strong contender, on a good day they could win against
every opponent
Possible ranking: The second round cannot be excluded
Togo
Probably only a sparring-partner, but Senegal was also rated like this
back in 2002.
Possible ranking: Elimination in the first round
Spain
Group H A disappointment this year again?
Possible ranking: Elimination against Brazil in the quarter finals
Ukraine
Shevchenko should be able to boost Ukraine in the second round
Possible ranking: At least Eighth Finals
Tunisia
A surprise is possible
Possible ranking: Through the first round seems difficult
Saudi Arabia
A team that gets better year after year, but in a very tough group
Possible ranking: Elimination in the first round is very likely
UBS investor’s guide special edition April 2006 29

Korea
Switzerland France Republic Togo
During the World Cup qualifiers, the young When France lifted the World Cup in 1998, South Korea is Asia’s indisputable power- To everybody’s surprise, the little country on
and hopeful “Nati” (national team) from the event triggered a spending frenzy that house – at least in terms of football. The na- Africa’s west coast managed to secure a
Switzerland showed with two draws a- helped the economy weather the storms of tional team has made it to the final round place in the World Cup on the final day
gainst France and the draw against global downturn. Over the past years the of every FIFA World Cup since 1986. Four of the qualifiers. It remains to be seen how
Ireland that there is plenty of potential. French economy has outperformed the Eu- years ago it celebrated an absolute high the combination of African football skills
The Swiss economy is also proving to be in rozone. Consumer expenditure has been point in its nation’s World Cup history, and discipline – the team is being coached
excellent condition. After around 2% the mainstay of French growth and con- when the team made the semifinal as host by German Otto Pfister – will help the team
growth in 2004 and 2005, there was no sumption has been driven largely by falling country. Economically, however, Korea has of eleven from the former German protec-
sign of the boom waning. Strong impetus savings and rising indebtedness; even not been able to keep pace with its neigh- torate of Togo during the World Cup. Eco-
continues to come from foreign demand, though the latter was matched by an im- bours (apart from Japan) in the last few nomically and politically, Togo has also
which this small and open national econo- pressive increase in housing wealth. Hous- years. Average economic growth slowed to recently experienced turbulent times. Fol-
my, with more than 45% coming from ing activity has likely peaked already and 4% in recent years, down from around 9% lowing the death of long-time president
exports, is particularly reliant on. The liveli- given relatively modest wage growth and in the 1980s. It must be said, though, that Gnassingbé Eyadéma in February 2005 and
er economic situation in Europe should high unemployment, French consumer South Korea has by now attained a very the controversial election of his son Faure
generate additional export orders, especial- spending looks vulnerable to a downturn high standard of living on an equal footing Gnassingbé as successor, political unrest
ly since the Swiss Franc continues to be low. on the housing market. So far, the French with that of southern European countries, swept the country. Economic growth was
At the same time, companies are stepping consumers have proved to be extremely re- which reduces the amount of catching up correspondingly low at around one percent.
up recruitment and beginning to invest silient and a similar spirit should see the required in economic terms. Yet if econom- 2006 is expected to see growth accelera-
in production plants. Unemployment in French national team win their Group G. ic growth were the decisive factor in win- tion to 3 % thanks to increased production
2006 should thus decline from 3.8% However, winning the quarter-finals, where ning, Korea would remain the favourite for in agriculture and growing foreign trade.
(2005) to an expected 3.4%. Overall, we they will face the likes of Italy will be a dif- a long time to come. In France and Switzer- daniel.kalt@ubs.com
expect a growth rate of 2.3% for 2006, ferent matter for the ageing French team. land, the country faces two tough (foot-
with a low inflation rate of only 0.8%. dirk.faltin@ubs.com balling) competitors in its World Cup group.
karin.schefer@ubs.com thomas-za.kaegi@ubs.com
Key facts Switzerland Key facts France Key facts Korea Republic Key facts Togo
Spain Ukraine Tunisia Saudi Arabia

Spain’s economy has been doing outstand- While the Ukraine’s chances in this year’s Tunisia wrote sporting history in 1978 when The country with the world’s largest proven
ingly for years. In real terms, GDP growth is World Cup may look doubtful, recent eco- it became the first African team to win a oil reserves is steadily consolidating its po-
not only accelerating, but at 3.4% in 2005 nomic and political developments are also game at a football World Cup. Seeking sition as one of the region’s strongest foot-
was also well above the average in the not encouraging. Early results following the competitiveness not only on the pitch, the ball teams. They completed the 12 quali-
Eurozone (1.4%). The driving force behind March 26 parliamentary elections did not economy widely embraces a liberal trade fiers undefeated – participating in a World
the Spanish economy was the strong produce a clear winner, suggesting that policy – exemplified by the country’s export- Cup for the fourth time in a row. Almost as
domestic demand. We expect that with complicated coalition building will domi- oriented textile industry. After experiencing recurrent as the country’s appearances in
anticipated growth of 3.0% in 2006 and nate the landscape for the time being. It re- a setback following the dissolution of the recent World Cups is the government’s
2.5% in 2007 Spain will be able to score mains unclear whether former Prime Min- Multifibre Agreement at the start of 2005, attempt to diversify its economy away from
points in an international comparison. ister Yulia Timoshenko will succeed in out- the sector is actually expected to attract the oil sector. The latter, however, remains
Nevertheless, some weaknesses can be doing efforts by President Yushchenko to new direct investments in the coming years. dominant making up approximately one
made out: High inflation rates have for build his own coalition with (former) politi- Together with a strong tourist industry and third of GDP, three quarters of government
years been eroding the competitiveness of cal foe Yanukovich. investments in infrastructure, the recovery revenues, and more than four fifths of ex-
Spanish businesses and private debt is com- On the economy itself, both growth and of the textile industry will likely contribute port income.
paratively high. Politically, the situation has the current account surplus has slowed to stronger GDP growth in 2006, after a When it comes to investing in Saudi Ara-
calmed down following an agreement with markedly. While in part this can be ex- slight downturn in 2005. Being one of the bian assets, most investors are relegated to
the Catalans who have been striving for plained by base effects, looking ahead the few emerging market countries regularly mere spectators. Markets remain broadly
greater independence. Overall, we see prospects are not bright, given lacklustre issuing debt securities denominated in EUR, inaccessible for foreigners, such that the
Spain in a positive light – rapid and signifi- investment spending and depressed activi- the country’s assets provide an alternative football team’s performance at the coming
cant changes are not expected. In sporting ty owing to political concerns. While the in an increasingly USD focused asset class. World Cup will probably have more impact
terms, this consistency could not be wished Ukraine’s large international reserves are christoph.arnold@ubs.com for most readers than the performance of
on “La Selección”. After all this would en- supportive, the worsening current account the country’s stock exchange.
tail a disappointingly early retirement from will continue to warrant close monitoring christoph.arnold@ubs.com
the competition for the Spanish football given the negative effects of the Russia-
team, as has so often been the case in pre- Ukraine gas dispute earlier in the year.
vious major international tournaments. stefan.hofer@ubs.com
hans-ulrich.mayer@ubs.com
Key facts Spain Key facts Ukraine Key facts Tunisia Key facts Saudi Arabia
Recommendations Recommendations
More than only short-term influence Football tournaments tend to influence emerging markets tend to be affected more
the performance of certain sectors. As by national football given its large influence
Major football events touch more than just supporters’ hearts. Verifiably, stock shown in the right-hand graph, “Consumer on locals.
markets and economies are influenced. But is this economic fact or psychology? Staples” and its sub sectors outperformed Obviously, these findings must be treat-
Can strategies be developed to benefit from these effects? While the economic the market in tournament years beginning ed carefully, as statistical significance is
impact is tangible – particularly in the host country – stock market moves appear in 1996 and especially during World Cup doubtful and we have found several excep-
driven by subjectivity. We have looked at equity market performance at coun- years. Other sectors like Media and Trans- tions. That said Germany, as host of the
try and sector levels. Moreover, we have explored whether this influence is dif- portation, where one may also expect high 2006 World Cup, is an interesting example
ferent for developed countries and emerging markets. correlation to such events, did not profit itself. It has already received the award of
from the same effect. “World Champion” in pessimism. While
The economic impact of the World Cup is against Italy in March this year, while rising Generally, there seems to be an effect on not connected to the World Cup, it reflects
clearly visible, especially in Germany. Based 0.25% after winning against the US four emerging markets with strong football cul- Germany’s view on football, with an unusu-
on a simulation study, German GDP is ex- weeks later. Needless to say, this relation- tures. Especially nations like Brazil tend to ally low 9% believing the home team can
pected to increase by roughly EUR1.8bn ship only exists in “football” countries and react very strongly to football results. How- become World Champion. Hence, invest-
in 2006 with an overall effect of EUR6.8bn not in countries like the US. ever, this is not always true and the impact ment opportunities could emerge with low
between 2002 and 2010. However, other We believe there is also a mid-term influ- is difficult to assess, given that high market expectations leaving room for upside po-
participants are hardly influenced apart ence on stock markets, though confined to volatility and low liquidity influence these tential if football surprises positively. How-
from an apparent impact on consumer con- the host country. In detail, we found that in markets. ever, banking on this or any other of the
fidence, depending on a team’s success. 11 out of 14 cases since 1974, as the left- The results are likely mostly psychologi- shown effects bears significant risks and is
Academic research shows losses can have hand graph shows, the “hosting” stock cally driven, with the effect on consumer certainly not suitable for the faint hearted.
a statistically significant (negative) impact market outperformed the broad market confidence a good example. The loss effect christian.hefti@ubs.com
on stock market performance, whereas from April to August in the tournament is probably caused by overly enthusiastic ex- gregor.rudolph-dengel@ubs.com
victories do not. The markets of 39 football year. Interestingly, World Cup 2006 host pectations before a game, so losses surprise
nations averaged worse the day after Germany outperformed the broad market more than victories. Put differently, the
a loss than they did well the day after vic- both in 1974 and 1988 when they hosted “home” team is always expected to win.
tories. This corresponds to our findings. For a World Cup and a European Champi- The same likely applies for the strong per-
example, the German market dropped onship, respectively. formance of some sectors in the mid term.
1.42% after its loss in a friendly match Investors appear to prefer certain sectors
because they are expected to profit from
major football events. However, profits, as
Hosting equity markets outperform measured by EPS growth, are barely influ-
Consumer Staples outperform during
during World Cup (April – August) enced. The overall positive performance im-
World Cup (April – August)
pact on hosting countries, on the other
8 6
Relative monthly performance to the Relative performance in % hand, can derive itself both from positive
MSCI World of hosting nations (average in %)
6
WC
4 sentiment and economic data: GDP is influ-
4
European Championship
2
enced positively beyond the actual year of
the tournament and a generally positive
Portugal 04
Sweden 92
mood can influence the stock market psy-

Italy 90
2 0
MSCI World Consumer Staples
0 –2 MSCI World Food/Beverages/Tobacco chologically. Small market capitalization is a
UK 96
France 98
Germany 74
Italy 80
France 84
Germany 88
Netherlands/
Belgium 00
USA 94
Japan/
Corea 02
MSCI World Food/Staples Retailing

MSCI World Household & Personal
reason why emerging markets are influ-
–2 –4 Products enced more easily than developed markets.
Source: Datastream
–4 Source: Datastream / The WC/EC list is incomplete due to missing data
–6 Besides, due to higher local ownership,
uneven years even years World cup years
The Good, the Bad, and the Ugly Asset class availability
Equities USD/EUR Bonds Local Currency Bonds
This year’s qualifiers for the world cup have produced an eclectic mix of coun-
tries. One should not be surprised if local markets in some of these have a short-
Angola
lived rally on the “feel good” factor of a good performance at the World Cup. Argentina ☺ ☺ ☺
But investors looking for such opportunities in the more exotic markets may be Brazil ☺ ☺ ☺
frustrated. Costa Rica ☺ ☺
A strong performance on the football field Countries that continue to provide Cote d’Ivoire ☺ ☺ ☺
by Angola, Ghana, Paraguay and Togo investors with good medium-term Croatia ☺ ☺ ☺
cannot have any market implications as economic prospects include Croatia, the Czech Republic ☺ ☺ ☺
these countries have almost no securities Czech Republic, Korea, Mexico, Poland
available. Saudi Arabia and Iran, on the and Tunisia. More uncertain prospects
Ecuador ☺ ☺
other hand, are countries that do have se- face Ecuador, Serbia and the Ukraine. Of Ghana ☺
curities markets (very liquid in Saudi Ara- the former group, we find the greatest Iran ☺
bia’s case), but are largely closed to for- value in Korean equities as well as select- Korea ☺ ☺ ☺
eign investors. Any rally will be enjoyed ed Mexican corporate bonds and peso-
only by the locals. Côte d’Ivoire’s bonds, denominated fixed income products. In
Mexico ☺ ☺ ☺
on the other hand, may be attractive for Poland, the Czech Republic and Tunisia, Paraguay
investors with a taste for distressed as- while economic prospects are very bright, Poland ☺ ☺ ☺
sets. But no football-related enthusiasm bond and equity market valuations are Saudi Arabia ☺ ☺
will be sufficient to raise the recovery not particularly compelling. Within the
value of defaulted bonds. latter group, the worsening current ac- Serbia ☺ ☺
The bulk of the remaining countries, count and political uncertainties are Togo
however, have reasonably liquid tradable dampening the outlook for the Ukraine. Trinidad & Tobago ☺ ☺ ☺
markets. However, investors should care- Recent news of Ecuador’s partial call of its
fully distinguish between those that are high coupon 2012 is certainly positive for
Tunisia ☺ ☺ ☺
good medium-term ideas and those the debt outlook. Ukraine ☺ ☺ ☺
Source: S&P, Bloomberg, UBS WMR
where a rally would be providing a good A good investment strategy is to use The table indicates existence of the different assets. However, it is possible that some assets are not accessible for all investors.
opportunity to sell. Two famous football any world-cup-related market movements
countries provide an excellent example of to adjust portfolios in line with medium-
these two groups: Brazil and Argentina. term economic and market fundaments.
With sound economic fundamentals, For example, a bad performance by Brazil
Brazil’s real-denominated bonds and equi- may provide a good opportunity to invest
ties continue to provide investors with in Brazilian assets, while a good perform-
excellent opportunities. Argentina’s in- ance by Argentina could provide the right
creasingly radical approach to economic moment to sell Argentinean investments.
policies invites radical investment strate- oussama.himani@ubs.com
gies. This is a market for investors to re- stefan.hofer@ubs.com
main vigilant, nimble, and ready to exit.
The 11 Performers: Our World Cup Equity Team three-month period ahead of the final games forming the market are more obvious than
of our seven major football championships, for others. We have included a comment
A football team has 11 players, and we have selected our own team of 11 stocks this basket would have had extraordinary re- as to where we think each player should
that have consistently outperformed the broad market in the three-month peri- sults, as shown in the table below. be positioned as depicted on the pitch on
od leading up to two major football events, the World Cup and the European For a start, the basket outperformed the page 41.
Championship. These 11 stocks constitute our ideal stock line-up for the World MSCI World index six out of seven times;
Cup. We recommend investing in these stocks immediately and closing the in- and the outperformance was very signifi- Nintendo: playmaker in the midfield
vestment on the final day of the World Cup. cant in most cases. Even in the last three Nintendo no doubt stands to profit from
events, when the index was down, this bas- big football tournaments through its various
We have screened the universe of global football event and not to other reasons. ket of stocks would have shown clear pos- football video games. Youngsters (and not-
stocks looking for stocks that have consis- Hence, we only include stocks whose itive results. so-young-sters) get excited by the World Cup
tently outperformed the broad market in outperformance in the three-month pe- The average performance of our 11 stocks and the hype surrounding the star players.
the three months leading up to the finals of riod is stronger than its outperformance would have been 9.03% in the three months This large group is primed to play (and hence
our two major tournaments, the World Cup during the rest of that same year. This prior to the finals, while the index itself yield- to buy) Nintendo football videogames.
and the European Championship. way, we exclude companies whose out- ed a negative 1.01% in that period. Nintendo is our playmaker in the mid-
performance is due to reasons other than field, a position requiring a high degree of
Talent spotting football championships. Players and positions technical skill, excellent peripheral vision
For our back-test, we selected the last four G We only include companies that have In order to better understand why these and quick reflexes. By moving the ball
European Championships and the last three consistently outperformed the market in companies consistently outperform the around quickly and accurately in the mid-
World Cups. The following criteria were these periods. Hence, we only include market during football championships, field, Nintendo will no doubt create many
used for selecting the stocks for our team: stocks that fulfil the previous two criteria we will take a brief look at each company’s scoring chances for our attacking line
G The stocks must have outperformed the in at least five of the last seven football activities and comment on the reasons
broad market (the MSCI World) in the championships; the last three World for their consistent outperformance. For Holcim: goalkeeper
three months leading up to the final day Cups and the last four European Cham- some companies, the reasons for outper- The World Cup always involves major infra-
of the championship pionships. structure projects in the host country. Hol-
G The outperformance in this three-month G We only include companies covered by cim should benefit handsomely from an in-
period must be traceable to the actual UBS Wealth Management Research. Back-testing results crease in building materials sales, as well as
Event Dates Our 11 selected MSCI World in its engineering consulting services.
players (%) index (%)
Seventy two stocks fulfilled the above crite- Sweden 26 March – 13.86 0.51 A great team always starts with a great
The 11 selected stocks ria. Out of these 72 companies, we have 1992 26 June 1992 goalkeeper, and here we have a rock-solid
Stock Valor ISIN selected the 11 whose business activities USA 17 May – 17.42 1.93 choice. Solidity is a key asset for a goalkeep-
Nintendo 762 921 JP3756600007 should benefit the most from the football 1994 17 August 1994 er as it inspires confidence in the whole de-
Holcim 1 221 405 CH0012214059 England 30 March – 11.69 3.01
events from a fundamental point of view. 1996 to 30 June 1996 fence. Holcim can build a concrete wall in
Heineken 1 804 984 NL0000009165
We have positioned each of the 11 stocks France 12 May – –1.83 0.97 front of the goal, making sure that no shots
Canon 761 599 JP3242800005
on the playing field in order to give addi- 1998 12 August 1998 go in.
Coca-Cola 919 390 US1912161007
tional flavour to the solution. The table on Netherlands 2 April – 4.82 –3.47
Scottish & Newcastle 404 256 GB0007839698 2000 2 July 2000
Fuji Photo Film 761 845 JP3814000000 page 38 shows our dream team of stocks Heineken: defensive midfielder
Japan-Korea 30 March – 10.22 –8.99
Tesco 408 910 GB0008847096 ready to play the World Cup. 2002 June 2002 Increased beer consumption during the
Intercontinental Hotels 2 148 614 GB00B07Q1P26 Portugal 4 April – 6.99 –1.02 World Cup seems likely, based on empirical
Puma 481 322 DE0006969603 Compelling back-testing 2004 4 July 2004 field observations by the analyst team, so
Beiersdorf 324 660 DE0005200000 If we had selected an equally-weighted Average 9.03 –1.01 the tournament should be a positive for the
Source: Citigroup, UBS WMR
Source: UBS WMR
basket of these 11 selected stocks in the stock.
We position Heineken as a defensive mid- sive player. Very stable movements ensure global player, our right-back knows the dence based on consistent good perform-
fielder. This is a tricky position: on the one a solid defence. The downside is that too other teams well. This is an important ance during past tournaments. With this
hand, its distribution capabilities should much beer and chips consumption may asset in order to prepare conscientiously selection of 11 stocks, we have satisfied
make sure the ball moves swiftly up field lead to clumsiness and unnecessary penal- for the matches. both of these criteria. So, enjoy the games
from the defensive zone to the midfield; on ties. That is why we put it on the left side and join us in watching how our 11 stocks
the other hand, too much beer can blur a of the defence rather than the middle. Puma: forward player perform.
team’s defensive capabilities Sporting goods sales should rise in the oscar.andreu@ubs.com
Fuji Photo Film: forward player run-up to the competition, as well as
Canon: forward player As with Canon, the attractiveness of the during the matches. Based in the host
The huge interest in big football tourna- game and the worldwide media attention country, Germany, we are convinced Puma
ments, with their worldwide media atten- are beneficial for digital imaging technolo- will benefit from higher-than-average
tion, is beneficial for digital imaging tech- gy devices, such as cameras, video recorders brand awareness. Our fiercest attacker.
nology devices, such as cameras, video etc. We put Fuji in the attacking line for the Quick: Puma’s speed will allow it to run past
recorders, etc. same reasons as Canon. This company spe- an opponent’s defensive line. Agile: perfect
Canon is one of our forwards, as its top- cializes in fast movements, ideal for the left for jumping high and heading balls into
of-the-line cameras have the necessary wing. Fuji and Canon know each other very the back of the net. Aggressive: will not
quick reflexes to run the right wing of the well and that familiarity will foster the kind be intimidated by strong defenders. Puma
attacking line. Canon will “freeze” the op- of well-oiled teamwork that can really hurt is certainly one of the main contenders,
posite team’s defenders easily, opening up opposing teams. together with Ronaldinho, to become Our World Cup line-up
many scoring opportunities. the top-scoring player of the tournament.
Tesco: left defence player
Coca-Cola: midfield player During the World Cup, especially in the UK, Beiersdorf: defence player Holcim
Coca-Cola is present at most major sport- people will cook less often and rely more on It may be difficult to see the link between
ing events. This World Cup will be no ex- ready-made food. Tesco stands to benefit Beiersdorf and the World Cup, but the
ception, as the company is one of the main from this trend, as it targets the lower- and quantitative results are compelling. We
sponsors of the competition. This presence middle-class UK consumer, the UK’s main could suggest, without being too far- Intcntal. Scottish &
Beiersdorf Tesco
will help sales and raise awareness even fur- target groups for football-related sales. fetched, that the World Cup leads to an in- Hotels Newcastle
ther. Tesco is a defensive player, and as such, pro- crease in sales for packaging, personal care
The next-generation midfield player: Co- vides the perfect complementary skills for products and suntan lotion. Heineken
ca-Cola is omnipresent, everywhere at the Beiersdorf at the centre of our defensive This solid and defensive player is ideal for
same time, well-positioned to continuously line. The breadth of its food range is a must the centre of our defensive line. It is ideally Nintendo Coca-Cola
intercept the ball from the opposing team, to protect and nurture our goalkeeper. positioned to protect our goalkeeper and
a key to a strong counterattack. This bub- mask the effect of the opponent team’s at-
bly player will surely lift our team’s morale, Intercontinental Hotels: tacks. Its surgical capabilities will ensure our
and its sweet character will energize play, right defence player goalie remains healthy. Also, its “creamy”
Canon Puma Fuji
another key asset in a midfielder. We foresee a surge in hotel bookings dur- nature will ensure a smooth transition from
ing the World Cup, as people from all over defence to mid-field.
Scottish & Newcastle: defence player the world will need accommodation when
Beer consumption and pub attendance in they visit Germany to attend the games. Conclusion
the UK increase famously during a World Our right-back and fourth defender. Inter- If you want to win the World Cup, you need
Cup. This will clearly benefit Scottish & conti’s hospitality know-how will ensure your team to have a wide range of skills.
Newcastle. Scottish & Newcastle is a defen- that our goalkeeper is undisturbed. As a Another key asset for your team is confi-
Disclosures Publication data
Enterprises 9 A member of the UBS Wealth Management Investment

Argentina 1. Beiersdorf 2. Brazil 1, 3. Canon 4. Coca-Cola Strategy and Research team, or one of their household Publisher Desktop publishing
Co. 1, 4, 5, 6, 7, 8, 9. Croatia 10. Ecuador 2. Fuji Photo Film members, has a long common stock position in this UBS AG, Wealth Management Research Werner Kuonen, Hanni Lischer
4. Heineken 4. Holcim 1, 3, 11. Kingdom of Sweden 10. Ko- company. P.O. Box, CH-8098 Zurich Arthur Meier, Margrit Oppliger, René Rüegg
rea (Republic of) 1, 3. Mexico 1, 3. Nintendo 4. Poland 12. 10 UBS AG, its affiliates or subsidiaries has acted as man-
Puma 4. Republic of Italy 1, 3. Scottish & Newcastle 1, 11, ager/co-manager in the underwriting or placement of
13, 14. Tesco 1, 4, 15. Ukraine 1, 3. United Kingdom of securities of this company or one of its affiliates within Editorial team Printing
Great Britain 1, 3. the past three years. Andreas Höfert, Editor-in-Chief Neidhart+Schön AG, Zurich
11 UBS AG, its affiliates or subsidiaries expect to receive or
intend to seek compensation for investment banking
Simone Hofer, Deputy Editor-in-Chief
Footnotes services from this company within the next three Contact
1 Within the past 12 months, UBS AG, its affiliates or sub- months. Product management UBS-Research@ubs.com
sidiaries has received compensation for investment 12 UBS AG, its affiliates or subsidiaries has acted as man- Christian Burger
banking services from this company/entity. ager/co-manager in the underwriting or placement of
2 Within the past three years, UBS AG, its affiliates or sub- securities of this company or one of its affiliates within Editorial deadline
sidiaries has received compensation for investment the past five years. Translations Thursday, 13 April 2006
banking services from this company/entity. 13 UBS Limited is acting as manager/co-manager, under- 24translate.ch
3 UBS AG, its affiliates or subsidiaries has acted as man- writer or placement agent in regard to an offering of
ager/co-manager in the underwriting or placement of securities of this company or one of its affiliates.
securities of this company or one of its affiliates within 14 UBS Limited acts as broker to this company.
the past 12 months. 15 UBS AG, its affiliates or subsidiaries held other signifi-
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and/or ADRs of this company. month’s end (or the prior month’s end if this report is
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FIFA ranking: March 2006, Source: FIFA publication is made available to clients of UBS (Luxembourg) S.A., a regulated bank under the supervision of the ‘‘Commission de Surveillance
du Secteur Financier’’ (CSSF).
World Cup participations: excl. 2006, Source: FIFA
© UBS 1998–2006. The key symbol and UBS are registered and unregistered trademarks of UBS. All rights reserved.
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You & Us

We bring global resources

Wealth Management Research 21 April 2006

UBS investor’s guide

Editorial 3 As the climax of that Dear Readers,

UBS investor’s guide special edition April 2006 3

Championship in 2004 despite being ap- 2 nd round and probability to win in %

1st round and probability to make it

Group A Group E Italy 54

Trinidad & Tobago

Germany Costa Rica Poland Ecuador

Tables: see page 42 for explanations and sources

Tables: see page 42 for explanations and sources

Serbia & Montenegro

Tables: see page 42 for explanations and sources

Mexico Iran Angola Portugal

Tables: see page 42 for explanations and sources

Tables: see page 42 for explanations and sources

Brazil Croatia Australia Japan

Tables: see page 42 for explanations and sources

UBS investor’s guide special edition April 2006 29

Tables: see page 42 for explanations and sources

Spain Ukraine Tunisia Saudi Arabia

Tables: see page 42 for explanations and sources

mood can influence the stock market psy-

MSCI World Food/Staples Retailing

Enterprises 9 A member of the UBS Wealth Management Investment

42 UBS investor’s guide special edition April 2006

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