2014 has been tough for Australian share market investors.
Whilst the local S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) is down 2.6% since January 2, the USA's S&P 500 (INDEXSP: .INX) is up an impressive 10%.
But unfortunately 2015 isn't looking much better. Major export commodities like iron ore, coal and oil are being tipped to stay lower for longer, business and consumer confidence remains low and housing is expected to come off a hot streak.
As a result of their exposure to the housing sector and already high valuations, it'll be difficult for the share prices of our biggest retail banks – NAB, Westpac, ANZ and Commonwealth Bank of Australia – to outperform the market in the next year.
However investors may have a number of reasons to be bullish on the prospects of Macquarie Group Ltd (ASX: MQG), our fifth-largest bank by market capitalisation:
1. Overseas exposure. Macquarie derives just 35% of its income from Australia, but 30% from the Americas, 25% from Europe, Africa and the Middle East and the remaining 10% from Asia.
2. Performance Fees. In the first half of FY15, Macquarie generated $2.181 billion of fee and commission income, up 19% on the prior period. With strong foreign markets and more assets under management, there's reason to believe the short-term growth outlook is positive.
3. Valuation and Dividends. At today's price, Macquarie trades on a lower price-book ratio than its larger peers and a forecast 5.1% partially franked dividend yield. Since interest rates are likely to remain low for some time, those seeking income may be compelled to take a second look at Macquarie.
Foolish takeaway
Although Macquarie has a conservative balance sheet and is pushing into annuity-style services, around 37% of its operating income stems from volatile capital markets facing businesses. These can provide a boost to earnings when markets are performing well (as they are now), but will usually fall away when investor sentiment shifts. Therefore in 2015 shareholders will likely be net beneficiaries of its overseas and capital markets exposure.