In 2015 major export commodities like iron ore, coal and oil are likely to stay lower for longer, business and consumer confidence could also remain low and housing is expected to come off a hot streak.
Given their exposure to the housing sector and sky-high valuations, it'll be a difficult for the share prices of our biggest retail banks – including National Australia Bank Ltd. (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA) – to outperform the market in the next year.
But 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. Here are three reasons to be positive on Macquarie.
- Overseas exposure. Macquarie derives just 35% of its income from Australia and 30% from the Americas, 25% from Europe, Africa and the Middle East and the remaining 10% from Asia.
- Performance Fees. In the first half of financial-year 2015, Macquarie generated $2.181 billion of fee and commission income, up 19% on the prior period. With foreign markets rallying and more assets under management, Macquarie was able to post profit guidance of 10% to 20% over the prior year.
- Valuation and Dividends. At today's price, Macquarie trades on a lower price-book ratio than its larger peers and a forecast 5% partially franked dividend yield. Since interest rates are likely to remain low for some time, investors' search for yield will have Macquarie Group shares firmly on their watchlists.
Foolish takeaway
Although Macquarie has a conservative balance sheet and is pushing into annuity-style services, over one-third of its operating income is derived from cyclical 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. It's important to keep this in mind when weighing up whether or not to invest in Macquarie, especially for income purposes.
