Saxo Equity World Cup: Russia to win opening match

On Friday we have three other matches. Here are our predictions:

Egypt vs Uruguay

In this match it is Commercial International Bank Egypt SAE (CIB) vs Uruguay 9.875% 2022 government bond (local). Uruguay has no liquid publicly-listed stocks so the country is represented by a government bond with a couple of years to maturity. Our prediction is that CIB will generate the biggest returns simply from being more volatile but also because Egyptian equities (in USD) have stopped the bleeding that began in early May and may experience a short-term rebound. While CIB is a well-run bank it operates in a volatile macro environment with the Egyptian government running a twin deficit across the current account (-4% in 2018) and the budget (-8.7% in 2018). On top of this, inflation was very high  in 2017 at 23.5% though it is expected to cool to 15% in 2018.

Prediction: Egypt wins

Morocco vs Iran

In this match Morocco is represented by Maroc Telecom and Iran is represented by Brent crude oil. The current trade sanctions mean that we have no access to prices from Iran’s stock market so the best proxy on the country is its largest export good, which is oil. Maroc is classic EM telecom company but is in a maturing market, as evidenced by the low organic growth rate of around 1%. While the stock price has gone up 35% in USD since 2015, recent performance has been more muted given the pressure of late on EM. Brent crude on the other hand has been a strong contender the past year, rising rapidly with the oil market being more balanced and with Iran recently partly shut off by US sanctions. Our prediction is that Brent crude will continue to be bid and will win against Maroc Telecom.

Prediction: Iran wins

Maroc Telecom vs Brent crude oil:

Portugal vs Spain

In this match determining who will triumph in the Iberian peninsula, Portugal is represented by Galp Energia, the country’s largest integrated energy company. Spain is represented by Banco Santander, one of Europe’s largest commercial banks. Santander’s share price has been hit hard by the sell-off in Italy caused by radical proposals from the new populist government in that country. The event spooked investors and revived the idea of a broken euro and a broken Europe. As a result, all European peripheral assets were sold off. It is our prediction that Santander’s shares could see a mean reversion short-term and as the stock is more volatile than Galp Energia we think the odds favour a bet on Santander. Our equity factor model has a total score on Santander of 0.39 vs 0.29 for Galp Energia, so our factor model supports our short-term views.

Prediction: Spain wins

We will follow up on the above predictions on Friday and provide new forecasts for next week’s matches too.