The market – for the World Cup obsessed

Every four years, nations from all over the globe get behind their respective teams in the pursuit of glory. Closer to home, every four years, fellow England fans prep their reasons in earnest to leave the office early and watch the Three Lions, hedging their bets on how many pints may tip the balance between a gruelling Wednesday in the office and an overly suspect email to the boss requesting to work from home.

For most, it marks a period where days are measured in increments of 90 minutes, weeks are measured in quantity of fixtures, and the next month is determined by the amount of hope you allow yourself to throw behind your country.

For those World Cup obsessed – like me – everything seems to resemble football in one way or another; I can’t imagine I’m the only one. So, here are three market trends through the lens of the World Cup:

1) Emerging Powers Demonstrate Their Strength

Whether it’s Cape Verde holding the reigning European champions Spain to a 0-0 draw, or Qatar stunning Switzerland with a last-minute goal to draw level, everyone loves to see an underdog overachieve.

Historical underperformers outshining expectations is enough to raise the BPM of any investor’s pulse. We have recently seen the same Cinderella story play out across emerging markets. Improved EM fundamentals have largely transformed as a result of a global rebalancing and the EM central banks’ adoption of increased fiscal discipline comparable to their DM peers.

This lack of distinguishable edge between the riskiest and the safest bets is also what makes this World Cup so irresistible. Gone are the days of Cruyff’s Total Football, Pele’s Joga Bonito or the Spanish Tiki-Taka football 2010 separating the highest performers from the lowest. A more globalized footballing world means a greater convergence in frameworks, strategy and playing styles. Cape Verde’s defensive resilience against Spain has nothing to do with their footballing heritage, but a level of understanding of what is required to match high quality opposition.

Emerging markets are now displaying the same level of fiscal credibility as their developed counterparts, absorbing the pressure of global shocks. Allianz Global Investors comments:

“So far, no major EM central bank has been forced into emergency hikes, capital controls or disorderly stabilization measures, a significant break from the historical pattern of oil shocks triggering balance-of-payments crises across EM economies. The differentiation once again runs through fundamentals rather than the EM-DM label.”

As with international football, there is always appetite for worthy competition.

2) Overvaluation vs Performance

“Vibes beget vibes” goes the famous saying coined by revered investment commentator Prem Panesar of Savvy Investor. It’s impossible to escape talks of an overheated equity market that’s due a timely correction. Mega market caps have been a lure to less sophisticated, and more speculative investors – so the question is, can these companies deliver on their elevated capex?

With the sweet subtlety of the “vibes doctrine” ringing in your ears, take a look at the estimated value of the top ten international men’s teams:

Source: Transfermarkt

Strikingly, some inclusions in this list have failed to deliver, despite the sky-high valuations of their component parts. Take the mighty England: they have failed to convert two successive European finals or capitalize on a semi-final place in the last World Cup. The same can be said of Portugal, Germany and Brazil who have faced even more humilia71ng exits in recent years.

I’m sure some of you will point to France and their recent run of success as a rationalization for “more equals more”. And while, yes, they do have some generationally good talent in the team including Champions League winners Bradley Barcola, Désiré Doué, Ballon D’Or winner Ousmane Dembélé as well as Kylian Mbappe and Michael Olise, realistically only three of these players will feature in any starting 11. The valuation of the whole entity, to the risk averse, contributes less to the overall results.

Now look at something like the recent SpaceX IPO. A market leader in spacecraft manufacturing and reusable rocket technology that recently hit a market cap of $2.1 trillion. If you tear down the prospectus, as Aswath Damodaran has done, it becomes clear that there are competing facets of the company that need to pull in the same direction. This includes its eponymous space enterprise solutions business, the xAI platform, its data centre leasing agreements with Anthropic and Google, and of course its jewel-in-the-crown, Starlink, which was the only profitable division of SpaceX as of last year.

SpaceX has the largest total addressable market of any company in history with a total TAM of $28 trillion, and AI accounting for $26 trillion of that market estimate.

The bet may still pay off despite the overreliance on a potentially overhyped AI division. Overreliance on an overinflated asset may also work in favor of Portugal who also suffer the burden of a 41-year-old albatross around their neck.

3) Infrastructure Matters

The U.S. have had eight years to prepare the adequate infrastructure required of a World Cup host. Bearing in mind over the same period, Qatar built eight state-of-the-art stadiums, a revitalized urban centre, a driverless metro system and a much-needed international airport expansion. Now it’s not my job to go into exactly how the Qatari government achieved such a feat in such a short space of time, my point is that global events of the World Cup’s scale require significant infrastructure investment.

I’m sure we’ve all seen the videos of U.S. influencers calling out European football fans for their audacity to expect a walkable route to the MetLife Stadium hosting the final. Failing that, you may have seen them defending New Jersey Transit raising their fares by over 10x despite many international sporting event hosts making travel free for ticket holders (2012 was a great year, wasn’t it?).

Fortunately, many other host cities throughout the U.S. have leveraged funding through municipal bond issuance to make significant upgrades ahead of the tournament. The Massachusetts Bay Transportation Authority (MBTA) have installed a new platform outside the Gilette Stadium at a cost of $35 million, Houston issued over $700 million in subordinate lien bonds as part of a $2 billion renovation of George Bush International Airport and Atlanta issues around $105 million in bonds to finance transportation improvements.  A recent study by SoFi showed that each host city could expect an economic boost between $160 million and $620 million.

With private credit under the microscope as many assess the benefits of illiquidity premia, infrastructure debt has emerged as a meaningful way to diversify. Backed by real assets, infrastructure debt has “demonstrated resilience through various cycles, with lower default rates and lower loss rates than non-financial corporate debt” according to MetLife Investment Management. Nuveen’s EQuilibrium Investor Survey shows that 43% of participating global institutions expect to increase their allocation to private infrastructure over the next two years. As well as the economic injection that typically comes with the World Cup, the hope is that these infrastructure upgrades will benefit locals for decades to come.

Sorry, there’s no fun football comparison in this last one, I just think catalysts to revitalize infrastructure and encourage local investment are neat.

Regardless of who you are supporting this summer I encourage everyone to get out and enjoy the festivities and I wish the best of luck to all your respective teams.