The prospect of a large US corporate tax cut is fuelling a rally in global equities with our market enjoying an early lift today with the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) up 0.4% this morning.
But the rally on our market may be more than sentiment driven as a number of ASX-listed companies are expected to reap big earnings benefits from plans to shave 14 percentage points from US corporate taxes to 21%.
The tax overhaul is the biggest revamp of the US tax system in decades and it could kick in as early as in two weeks!
That is great news for ASX-listed stocks with material US exposure as they too will enjoy a material reduction to their tax liability, although I think this development is likely to drag on our domestic market.
The issue is capital flow. There is already a trend for offshore investors to take money out of Australia in favour of investing in the US. The stark difference between US and Australian tax rates is likely to accelerate that flow in 2018.
But let's focus on the good news for now. Citigroup has run the numbers on stocks that will benefit the most from lower US taxes and has concluded that a number could see earnings upgrades of up to 17%.
That's a very material uplift in a market where next year's earnings growth (outside of resources) is expected to be pretty anaemic.
The stock that has most to gain from an earnings per share (EPS) perspective is James Hardies Industries plc (ASX: JHX) as the broker is forecasting a 17% surge for the building materials supplier.
Steel products manufacturer Bluescope Steel Limited (ASX: BSL) takes second place with an expected 11% improvement to its EPS from the tax overhaul, while gaming machine maker Aristocrat Leisure Limited (ASX: ALL) is not far behind with a 10% increase to its EPS.
Other stocks that are tipped to see upgrades of around 9% to their EPS include wealth manager Janus Henderson CDI (ASX: JHG), hearing implant maker Cochlear Limited (ASX: COH) and scrap metal company Sims Metal Management Ltd (ASX: SGM).
There are also other locally-listed companies with material US operations that stand to benefit. These include building materials group Boral Limited (ASX: BLD), logistics operator Brambles Limited (ASX: BXB), blood products maker CSL Limited (ASX: CSL), glove maker Ansell Limited (ASX: ANN) and share market services firms Computershare Limited (ASX: CPU) and Iress Ltd (ASX: IRE).
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