>The World Cup and Economics 2010

Welcome to our 2010 book on the World Cup and Economics, our fourth since the 1998 finals in Paris. As always, we present this as a fun piece, your companion to the competition, to be perused before, during and after the event. In addition, it might just give you some new ideas on how to benefit from our exciting, changing world.

We hope the book is as popular as past editions. To aid your enjoyment, we have kept some old favourites and added some new features. Once more, in addition to the work of our prodigious economists around the world, we have contributions from some very famous guests.

We include a very exciting contribution from Adrian Lovett of 1GOAL, a campaign designed to raise basic educational standards dramatically in the emerging world through the vehicle of the World Cup. We are happy to add our name to this effort.

Former South African Central Bank Governor Tito Mboweni discusses the host nation’s chances, aided by the football analytical skills of his nephew! Russian Deputy Prime Minister Shuvalov tells us what it is like for Russia not to be in South Africa—and expresses his hopes for a World Cup in Russia in 2018. We also have a very interesting contribution from one of our former partners, Carlos Cordeiro, on why the 2022 competition should be held in the US.

And, to keep it all fair and balanced, Andy Anson, CEO of England’s 2018 World Cup bid, states his case.

We then include a contribution from Kevin Roberts, editorial director of Sports Business Group, who offers his views on the possible hosts in 2018 and 2022. And we have a piece about Euro 2012, to be held in Poland and Ukraine, written by our own Magdalena Polan.

Many of our country pages have been written by guests, including Otmar Issing on Germany, Mayor of Rio Eduardo Paes on Brazil, Edwin van de Sar on the Netherlands, a group of football-loving FX traders on Italy and Tudor’s Angel Ubide on Spain.

In addition to our external contributors, my colleagues from around the world offer their insights into the economies of the participating nations, as well as some football thoughts. And we have a ‘special’ entry on Ireland, which perhaps should be there!

Back by popular demand is a 2010 version of the World Cup Dream Team, selected by you the clients (and GS staff worldwide). We have narrowed down a broad list of 121 players to 11, based on the nearly 3,000 votes submitted, which vastly exceeded the numbers who voted in 2006.
As usual, we also tentatively suggest the likely semi-finalists—always a highly contentious move. We would point out to those annoyed and irritated by our selections that we did name three of the four semi-finalists in 2006 and in 1998 (the least said about 2002, the better)… We complete the book with some interesting World Cup trivia.

We hope you enjoy our World Cup and Economics 2010!

To read the full report: THE WORLD CUP AND ECONOMICS

>What are the positive developments in finance since the crisis, and what issues still give ground for concern?

Some developments since the crisis definitely point to greater financial stability:

- reduction in debt leverage among households, companies and banks, which is making them less fragile: weaker link between indebtedness and wealth;

- since end-2009, slowdown in global liquidity growth due to the incipient reduction in "global imbalances";

- investor rejection of overly complex financial assets with overly complicated risk profiles.

But there is reason to worry about:

- the very high demand for return on equity that still persists, which gives an incentive to look for speculative investments (commodities) and which could subsequently lead to a renewed increase in debt leverage;

- the excessive international capital mobility, in particular between emerging and OECD countries, which is destabilising the economies of emerging countries;

- the conflicts of objectives between regulators, who have a huge risk aversion, and economic policy decision-makers, who normally favour the long-term financing of the economy. Regulators may go too far and hurt long-term growth (with Basel III, Solvency) or financial market liquidity (due to the excessive discouragement of trading).

- the excessive and useless liquidity in OECD countries (but not in emerging countries, as we saw above), which persists, especially in the United States.

To read the full report: POSITIVE DEVELOPMENTS IN FINANCE

>STANDARD CHARTERED: IPO NOTE (ANGEL SECURITIES)

Standard Chartered Plc's first-ever Indian depository receipt (IDR) will open on May 25, 2010, at a price band of Rs100-115. The company will issue 24 crore IDRs (10 IDRs representing 1 share), accounting for 1.16% of the bank's capital. The issue of IDRs will allow Standard Chartered to significantly boost its market visibility and brand perception in India. The company is already listed in London and Hong Kong. Standard Chartered Bank (SCB) is the main operating entity of the group. SCB focuses on developing its wholesale and consumer banking business in Asia, Africa and the Middle East, from where it derives 90% of its operating income and profit. The bank operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people.

An Emerging Market Play

Rationale for our Subscribe recommendation
■ Well placed to play the emerging market recovery: SCB is well positioned to benefit from the recovering emerging markets. The bank has well-diversified revenue streams spread across emerging markets such as Hong Kong, Singapore, India, Korea, the Middle East and Africa. Diversification of the business, capital employed and operating income across economies act as a natural hedge and offers the bank an opportunity to dynamically and optimally utilise its resources. In 2009, Asia accounted for 83% of SCB's profit before tax (PBT), 83% of its loans and 78% of its assets.

■ Wholesale Banking and Trading business-The key drivers for Profit: SCB's wholesale banking business accounts for ~80% of its PBT. Unlike the consumer banking business, this business does not require any large distribution. The bank has enhanced its service capabilities (acquisitions and investments in technology), with relationships increasingly becoming multi-country and multi-product.

■ RoAs superior to peers and RoEs higher at 18%: From 2007 to 2009, the bank has been consistently reporting return on assets (ROA) and return of equity (RoE) in the range of 0.8% and 14-15%, respectively. Subdued RoEs are a result of high goodwill, which was created on account of acquisitions. If one looks at adjusted RoEs vis-à-vis price to adjusted book value, the parity is quite attractive with 18% RoEs. The bank is adequately capitalised with capital adequacy ratio (CAR) at 16.5% (as on December 31, 2009) and a strong core tier-1 ratio of 11.5%.

■ Outlook and Valuation: SCB's IDR provides Indian investors a vehicle to invest in a global entity that has a global presence. As a result of its diversified presence and emerging market focus, SCB came out relatively unscathed from the sub-prime crisis and is now well poised to benefit from the ongoing recovery in emerging economies. Hence, the bank is an excellent diversified multinational banking play, with strategic positioning in high-growth emerging markets. The stock is currently trading at 1.7x CY2010 P/B vis-a-vis 2.9x and 3.8x FY2010 P/B for Axis Bank and HDFC Bank, respectively. We recommend Subscribe to the Issue.

To read the full report: STANDARD CHARTERED