Overnight U.S. stock markets motored to record highs as the prospect of President-elect Donald Trump slashing taxes continues to put upward pressure on the valuation of companies across the board.
Investors are also betting that Trump's presidency will see a lift in interest rates across the U.S. and greater inflationary pressures due to fiscal stimulus. While the deregulation of business is also thought to be on the agenda for President Trump, as a billionaire who made his money in the construction business.
In Australia there are three decent-sized companies that have seen their values grow in response to the radical change of government in the US.
All three may have further to run for different reasons, so let's take a look at their investment merits based on today's valuations.
QBE Insurance Group Ltd (ASX: QBE) shares have climbed 25% since the U.S. election as investors expect that it will earn a better return on the significant float it invests in U.S. debt and money markets. This is a fair tailwind and likely to benefit QBE over FY17 and beyond, however, it remains an accident-prone business due to its multiple global operations and moving parts.
Due to its habit of giving investors nasty surprises, I would not consider QBE as a good long-term investment, although over the short-term the shares may continue to receive investor support.
Computershare Limited (ASX: CPU) shares are up 17% since the election and it's no surprise as it has leverage to rising interest rates on the vast amount of client funds it holds on account. Australian investors also benefit if the US dollar appreciates as the company reports in US dollars before paying out its dividends to Australian shareholders.
The firm expects management earnings per share in FY17 to be slightly above the 55 cents delivered in FY16, which means the group trades on around 21x estimated earnings when selling for $12.04.
Computershare has some attractive characteristics as an investment, although that now looks reflected in the share price given the company is unlikely to deliver consistently strong organic growth. At these levels it looks a hold to me.
Macquarie Group Ltd (ASX: MQG) shares are up around 9% since the election in tandem with major U.S. and European banks as investors react to the prospect of rising interest rates around the world and the potential abolition of regulation designed to limit the amount of market, credit, and leverage risk banks can take on.
There's little doubt that if the Dodd Frank act were abolished then banks would be able to leverage up their balance sheets again via riskier lending that could theoretically boost profitability.
Separately, Macquarie is also a specialist infrastructure asset manager and debt capital markets operator in the US, with multiple ways in which it could enjoy the financial fruits of Trump's policies. The stock sells for $83.90 with a trailing yield of 5.1%. Its adaptability and growing reach into the asset management space means it looks a solid long-term bet for total returns.
