In a hotly anticipated address to the U.S. congress president Donald Trump probably gave stock market investors what they wanted to hear today when he reaffirmed his promise to spend $1 trillion on U.S. infrastructure and slash company taxes.
In fact President Trump promised "big, big" company tax cuts were coming the way of U.S. companies in a move that is likely to lift profits higher for companies across U.S. markets. The president's core agenda of reflation, higher borrowing rates, protectionism, infrastructure investment, deregulation, and company tax cuts looks a bonanza for banking stocks that have already surged across U.S. stock markets.
For Australian investors the promised tax cuts in the U.S. mean it's business environment is likely to be more competitive and banks with deep footprints in the country like Macquarie Group Ltd (ASX: MQG) could prove to be winners over the medium term. Macquarie made 30% of its earnings in the U.S. in 2016 and tax cuts in the region should give a healthy boost to its bottom line as its chief executive Nicholas Moore recently acknowledged to the media.
It's Macquarie Capital advisory business is ranked number 2 (among its peers) for infrastructure and project finance advisory work in the U.S. and it is also heavily involved in infrastructure debt markets across North America.
The group is also well know for its adaptability and I expect has been hard at work considering how best it can leverage any legislative changes in the U.S.
Macquarie's adaptability is demonstrated by its rapid transition since the GFC into asset management and asset finance business predominantly, which also does a little investment banking and sell-side trading, broking and advisory work.
Of course it would be dumb to buy a business simply because it may benefit from a new U.S. government, although over a three to five-year time horizon there's little doubt Macquarie could do well under President Trump and its valuation looks reasonable at $87.05.
Other stocks on the ASX likely to do well as a result of the changing U.S. macro environment include Computershare Limited (ASX: CPU) and QBE Insurance Group Ltd (ASX: QBE). While some of the healthcare leaders with substantial U.S. earnings like ResMed Inc. (CHESS) (ASX: RMD) are also likely to enjoy a bottom line boost if the tax cuts do materialise.
