It's pretty much a forgone conclusion, US interest rates are going to rise again in 2016 and most likely continue rising through 2017 too!
While the impact to Australia of higher US interest rates is relatively small, there are two big blue-chip Australian companies that care a great deal about what happens over the next two years.
Low US Rates = Low Dividends
These big companies both had relatively a benign 2015 with one returning 13% and the other down 2% against the broader market that fell nearly 3%. The problem for both of them is that they hold a huge amount of cash for their customers that they can earn interest on but certainly can't risk losing.
These funds, that are generally held in the US dollars, get invested in term deposits and bonds that are returning next to nothing with US interest rates so low! This is bad for both shareholders and management teams as these 'easy' profits are felt in lower dividends to shareholders.
2 Big Blue Chips
As US rates slowly rise after years of being at 0%, these two global giants are getting set for a big 2016 and an even bigger 2017. Computershare Limited (ASX: CPU) shares fell over 20% from March to September when it announced that 2015 earnings would be lower due to the lacklustre rates on offer in the US, while QBE Insurance Group Ltd (ASX: QBE) shares nudged higher in 2015 as investors became more comfortable that management could deliver on their promises.
Risk vs Return
The big question now is how much risk do you want to take?
Computershare is acknowledged as one of the highest quality companies on the ASX due to its fantastic earnings stability owing to its dominance of the global share registry industry. Higher interest earnings will be a cherry on the top for shareholders who invest in the company for its sustainable earnings from operations and solid dividend yield.
QBE on the other hand is on the turnaround after years of underperformance. It's a higher risk proposition as it's operating in an extremely competitive industry (insurance) while on a multi-year rebuilding process after its acquisition splurge came undone a few years ago. The returns will be higher if everything goes to plan but investors run the risk of another 30% to 50% fall if management missteps!
