Charlie Parker: Oil exporters hoarding cash means global stagflation

They call it the oil bill, the massive transfer of wealth from oil importers like poor old blighty to the oil exporters.

While leaders in the Middle East have had a spot of bother to worry about in recent months they have been able to at least enjoy watching this process grow and grow. Morgan Stanley estimates that that this year some $2.4 trillion will be transferred or 3.7% of oil-importing countries combined GDP.

So what does this mean. Well it means they will have a lot of cash to spend. Some of it presumably will go on social projects to calm down the young angry populations of the Middle East. But there are only so many roads to build. the sheer volume of money to be spent means that it must seep out elsewhere.

Morgan Stanley analyst Joachim Fels puts it like this: 'We calculate that with a $140 a barrel average price of oil for this year, the gross income transfer would be 4.5% of importing economies' combined GDP. Were this price to persist for the whole of next year.'

For investors there are probably three key themes worth of consideration when analysing how to respond to this trend. Perhaps the most obvious is to conclude that oil exporters are likely to continue their quest for trophy assets in the West, and flush again with cash be even less bothered about the price they pay. Of all the most obvious areas where this trend could play out the banking sector is the most clear-cut.

We already know that the British government is going to be open to prospective offers for its stakes in the banks from the Middle East. Elsewhere, investors will look to anything that is bolted into the infrastructure of the West from ports to toll roads and the strongest consumer brands.

The problem is that it obviously requires a fair bit of luck as well as skill to find the exact investment that a Middle Eastern sovereign wealth fund will pounce on.

Perhaps the more sensible approach is simply to think about a top-down approach to the situation. Namely to pose the question: How much of the oil exporters income will be re-spent in the oil importers' economies through the purchase of goods and services?

If it is a substantial amount then it would seem logical to focus investments in the consumer sector on those areas likely to attract the fastest revenue growth from oil exporting nations.

Fels said: 'Over the last few years, oil exporters have been spending half of their oil revenues on goods imports from oil importing countries; that is, roughly half of the resources oil importers spend on oil flows back over time.'