Global imbalances in current accounts remain, says Stratton Street’s Andy Seaman

Andy Seaman, partner and portfolio manager at Stratton Street Capital sees continued global imbalances in current accounts, which is driving investment trends.

The large global imbalances that led to the credit crisis, and to countries having large net foreign liabilities leading to crisis, have reduced somewhat since 2008. They haven’t reversed or anything dramatic, so imbalances are still growing, but not as fast.

The big imbalance on the surplus side, now a similar size as it was in 2006-8, is the surplus of the oil producing countries, largely the Middle East and Russia. The MENA oil exporters alone are running a $400bn current account surplus, and Russia is running around a $200bn surplus.

The big change in the past ten years has been the shift in these surpluses towards Asia, with the MENA region being the only part of the world to run a large surplus with energy hungry Asia. With Asia outside Australia very energy-poor, the structural surplus of the Middle East is likely to remain for a long time, even if the US ceases to buy much imported energy. Overall global imbalances seem likely to remain, meaning that many debtor countries will still be in difficult positions.

The Middle East’s surplus is being invested in a variety of sovereign wealth funds. One is IPIC, an Abu Dhabi fund investing largely in the energy sector. Stratton Street have been a long time holder of their bonds which still remain cheap. They just announced their results, with a 40-fold rise in profits to $1.7bn, on improved operating results, in chemicals; the company also sold its 9% stake in Daimler for a 100% profit in three years.


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