One solid way to gain exposure to global financial markets and international currency movements is through owning shares in Macquarie Group Ltd (ASX: MQG).
In addition to sound governance and a track record of performance, Macquarie Group also makes most of its profit offshore, and that is an attractive attribute in this era of a weaker Aussie Dollar ("AUD").
Although the AUD fell significantly against major currencies like the Great Britain Pound ("GBP"), Euro ("EUR") and the US Dollar ("USD") in 2015, there could be further falls in store for 2016, especially if interest rates stay low, commodity prices stay down and our domestic economy weakens.
Macquarie estimates that: "A 10% movement in AUD is estimated to have approx. 7% impact on full year NPAT (Net Profit After Tax)". This refers to a 10% average annual movement against all major currencies that Macquarie operates in.
Here's a chart with a breakdown of Macquarie's foreign earnings over the past five half-yearly updates:
As investors can see, earnings are both lumpy and growing faster overseas than they are domestically. 71% of earnings were made in foreign currencies in the first half of financial year 2016, and the AUD has already lost some 6% against the USD, 4% against the EUR, and 2% against the GBP since the beginning of January.
With the Australian currency weakening, investors could expect Macquarie to experience modest currency tailwinds again in 2016, while the business itself is on track to grow again compared to 2015.
Macquarie expects its second half 2016 ("2H16") results to be "lower than 1H16 ($1.07bn NPAT) but higher than the prior corresponding period (2H15) ($0.926bn)" for an end result somewhere just north of $2 billion dollars NPAT (FY15: $1.6bn).
While a potential market crash in 2016 would mean lower performance fees (thus hurting revenues and profits) in the short term for Macquarie if it eventuates, the investment bank retains its diverse global presence, strong funding position, and sound leadership, which will stand it in good stead over the long term.
In addition to its global footprint, Macquarie shareholders should expect a steady string of earnings-accretive acquisitions over the next several years. With currency tailwinds and a rapidly growing business behind them, any price weakness would represent a great opportunity to stock up on this long-term winner.
