Investing and Football

May 2018 Chief Investment Office GWM Investment Research Investing and football Special edition 2018 World Cup in Russia Investing in emerging markets Special edition Contents Authors Jérôme Audran Michael Bolliger Tilmann Kolb Christine Novakovic 4 The most exciting event Head Europe, Middle East & Africa Jorge Mariscal of the year UBS Global Wealth Management Quentin Pilloud Editor in Chief Tilmann Kolb Dear reader, 7 Some surprising facts Editors about Russia Every four years, the world displays viewing, and celebrating the victors Russell Comer great emotion as the beautiful game while respecting the vanquished offer Project management captivates audiences around the globe ample opportunity to get to know Corinne Fedier 10 What investors can for an entire month. Russia will host other cultures. We experience this face this year’s football World Cup, where, of the Russian nation daily through our learn from successful Design and publishing on 14 June a whistle at Luznhiki Sta- interactions with our Russian clients. Michael Galliker football teams dium in Moscow will mark the start of Werner Kuonen Margrit Oppliger the tournament. Visitors will have far For all of football’s passion, getting more to marvel at than just the world’s carried away by emotion is not a sound Communication 12 More than goals top footballers – Russia has a rich his- formula when investing, though. In Fabian Gmuender tory, diverse culture, and majestic land- this report, our Chief Investment Office Irene Milisenna and feelings scapes. combines its excitement for the game Special thanks with a (recommended) cool-headed We would like to thank Vanessa Unfortunately, Russia has been in focus approach to investing. It takes a closer Maldonado and Daniel Alexeev for 16 And the winner is… in recent months not only because of look at the economic impact of the their valuable inputs and important the upcoming festivities, but also due tournament on the host country, some contributions. to its deteriorating relations with the of the challenges Russia faces, and Cover picture 22 Investing in Russia West. This includes the introduction of where it sees opportunities for global Gettyimages additional sanctions by the US, which investors to seek exposure to Russian has weighed on Russian assets. assets. And as is customary by now, the CIO also takes a shot at predicting 30 Disclaimer But the upcoming tournament may the winner of the tournament. serve to showcase the country and its people, over and above political differ- I hope that you find this paper not only This report has been prepared by ences. A laid-back and friendly atmo- fun and enjoyable to read, but also UBS AG, UBS Financial Services Inc. (UBS FS), and UBS Switzerland AG. sphere during the World Cup, cheering valuable for your investment decisions. Please see important disclaimer at together in a stadium or at a public the end of the document. 2 Investing in emerging markets | Special edition Investing in emerging markets | Special edition 3 Investing and football Investing and football The reality is probably more complex, we doubt that it will boost Russian The most exciting but it likely includes the above argu- GDP significantly in the longer term. ments. Moreover, Russia can afford its role as event of the year With 28 UNESCO World Heritage Sites, a host with ease. Looking at public amazing natural diversity, and a rich finances in the most football-savvy cultural heritage, Russia has a lot to nations on each continent (Fig. 1), it With just a few weeks left there is no other team with higher offer tourists. Yet, it attracts fewer shouldn’t be too big a surprise that until the opening game, it’s odds to lift the trophy than the defend- visitors than smaller countries such as several developed nations might shy time again to start talking ing champion. The list of likely con- Malaysia, Turkey, or Mexico, not to away from the extra spending involved tenders for the title is long, however. mention tourist powerhouses such as in becoming a host nation. Instead, about what many consider Besides Brazil and Spain, it includes France, Italy or Spain. Moreover, the countries like Saudi Arabia, Nigeria, or the most exciting event of the England, France, and Argentina. And benefit from investments in infrastruc- Peru seem to have a lot more fiscal lee- year: The World Cup. with Belgium, we even see a moderate ture should be higher in Russia than way to host upcoming tournaments. possibility that a team might succeed in many European countries. The esti- which has not won the competition mated spending of USD 12 billion, Not without international This time, the tournament will take before. We could even see Brazil face a bit less than 1% of GDP, might have controversies place in Russia. The opening game is its nemesis from 2014, Germany. While a higher investment return in Russia That said, Russia’s role as a host nation scheduled for 14 June in the Luzhniki we hope that the best team wins, we than in Spain, Italy, or France. Still, has resulted in significant controversy. Stadium in Moscow. Russia’s Sbornaya also hope that the outcome is less dev- will meet the Falcons from Saudi astating than last time, when our col- Arabia. Looking at their rankings, leagues in São Paulo were depressed this might not be the highest standing for several weeks afterwards. Fig. 1 pairing of the tournament. We are Can your country’s public nances aﬀord the luxury of being a host? absolutely sure, however, that the Emerging hosts Public debt, in % of GDP 234 game will be followed with great After South Africa and Brazil, Russia excitement across the globe and that will be the third emerging nation to 140 both teams will play with passion and host the tournament. If we add Qatar 120 grit for the first victory. to the list, the host in 2022, the ques- 100 tion can be asked whether great soccer 80 60 And the winner is… nations such as Germany, France, As always, the tournament is an England, Italy, or Spain have become 40 20 opportunity to tweak some of the tired of hosting the tournament, less 0 r t y a a e a a a o n ia modeling techniques we use in our appealing as hosts, or, whether they m il co US ta in UK re yp isi cc an ss rali abia ugal n Peru Ch nt Brazil ro Spai Qa Eg Japan Ko st rt daily work to the art of predicting the simply have run out of money to treat Ru France Ar Tu Nigeri Mexi ge i Belgiu Po Au Mo Germ Ar outcome of the competition. We are themselves to the luxury of such a ud humble enough not to outright claim costly endeavor. Sa that Germany will win the tournament Emerging markets Developed markets Current and future host nations again, but our simulations indicate Source: Fitch, UBS, as of April 2018 4 Investing in emerging markets | Special edition Investing in emerging markets | Special edition 5 Investing and football Investing and football For a start, the naming of Russia and a tribute to the Italian team, we re-run Qatar as host nations for 2018 and our simulations as if it were the Italians Some surprising 2022 respectively, triggered several who emerged as winners from dra- investigations, and ended in a wide- matic showdown in the qualification ranging crackdown on corruption in round. Last, we share some insights on facts about Russia the sport. Although several senior the investment landscape in Russia, officials have been banned from foot- focusing on economic trends and Quentin Pilloud, Junior Associate ball, many feel that the tournament is developments, and on the investment still tinged with controversy. And then opportunities and risks the country Russia is by far the largest country by area there is Russia’s involvement in Syria, offers investors. Given the heightened on earth. Yet, when it comes to tourism, Planet Pluto the accusation of meddling in foreign uncertainty regarding sanctions, we it is not a popular destination – just 24.6 Russia has a surface area of nations’ democratic elections, interna- currently advise a neutral allocation to million people visited the country in 2016, 17 million square kilometers, which is almost the size of the dwarf tional sanctions against the country, Russian equities and the ruble, while less than much smaller nations such as planet Pluto (estimated at 17.6m km2 and the conflict in Crimea. Tension we see opportunities to take selective Malaysia (26.8 million), Turkey (25.4 mil- by NASA’s New Horizon Program). between Russia and the West has been exposure in Russian credit. lion) and Mexico (32.1 million). Even rising for a while, and it is going to be though the climate in large parts of the difficult to de-escalate the situation in country may not favor tourism, the coun- our view. We hope, though, that the try offers a great deal to the traveler: the countries will use the tournament 28 UNESCO World Heritage Sites, an as an opportunity to build bridges. This amazing natural diversity that ranges from 100 languages would evoke the ancient Greek tradi- beaches in the south to arctic northern Russia is home to at least tion of pausing all warfare during the regions, as well as a rich cultural heritage 150 ethnic groups and 100 minority languages. Olympic games. that includes world- famous museums, his- torical churches and buildings, and excel- We structured this report as follows: lent art collections and exhibitions. We first present some interesting facts Shops, Bars ... open and figures about Russia, a country Themis Themistocleous п р а в д а Most shops, restaurants and bars that has a lot more to offer than many Head of European in Russia are open on Saturdays think.

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