The boss of Macquarie Group Ltd (ASX: MQG) has said that the United States is going to be the region that makes the most profit for the business in 2022.
Macquarie is one of the biggest businesses on the ASX. The global investment bank already generates two-thirds of its earnings from overseas.
It has a number of segments including banking and financial services, investment banking (Macquarie Capital), commodities and global markets, and asset management.
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Macquarie is increasingly global
The Macquarie CEO, Shemara Wikramanayake, explained the situation at the Australian Financial Review Business Summit.
Ms Wikramanayake said:
With Macquarie businesses, we're getting to the point where even though the Australian business is growing, we're probably going to be now earning each year more income from Europe and North America. And certainly the US this year will be our biggest earning region.
What's driving the strength of the US economy?
Macquarie's leader explained that the US economy is performing strongly. Before COVID-19, it had reached full employment and wages were starting to rise.
The terrible impacts of COVID-19 led to lockdowns, which did impact some sectors and individuals, but the re-opening is helping. The US has also seen a much larger amount of stimulus – bigger than Australia's. US stimulus amounted to US$5.4 trillion, which was 25% of GDP, compared to 15% in Australia, according to Ms Wikramanayake.
Wages growth could also start flowing through the national economy as well because the demand for workers is six times the labour market creation. So, Macquarie is expecting wages to grow strongly in the US.
Interest rate considerations
She also pointed out that the US Federal Reserve is entering this inflation environment with very low interest rates. The US Fed was expected to start rising in March by 0.50%, but now it seems the first rise will be a 0.25% increase amid the Russian invasion of Ukraine.
The supply chain impacts are still there, increasing inflation. But the flow-on impacts of the conflict and sanctions on Russia could lead to inflation increasing even faster.
However, the Macquarie boss suggested that the US Fed will want to strike a balance with the rate hikes so that the economy isn't sent into recession by increasing the interest rate too quickly.
She also said:
And so if you had the slightest supply shocks in that environment, you exacerbate price as well. We're going through really high energy prices and it could sustain if Russia-Ukraine plays out badly or if we're doing the transition too fast.
Is the Macquarie share price a buy?
In the most recent update for the three months to December 2021, it said that there were improved market conditions. That month was a record quarter thanks to profit being substantially up with higher principal income in Macquarie Capital including "exceptionally strong" investment realisations in the infrastructure (including green energy), business services and technology sectors.
Citi currently rates the global investment bank as a buy, with a price target of $226.
