7 big trends driving foreign investment this year

Where is the money flowing?

The biggest trends in foreign investment in 2016 are more money and the desire to invest in large, developed markets.

That’s the message from consultancy A.T. Kearney’s latest Foreign Direct Investment (FDI) Confidence Index. Using the responses of business executives around the globe, the Index aims to help identify cross-border investment patterns as they develop. Here are the top trends.

Global FDI flows faster ...

A.T. Kearney says global FDI flows jumped to an estimated US$1.7 trillion in 2015, the highest since the pre-global financial crisis days of 2007. “Moreover, a vast majority of executives also believe that FDI will become more important for corporate profitability and competitiveness in the coming years.”

…and FDI could flow faster still

More than 70 per cent of the executives A.T. Kearney talked with planned to increase FDI in the next three years. The executives cited the availability of high-quality investment targets, the economic environment and favourable foreign exchange dynamics. The consultancy also suggests, however, that executives may be looking at investments as a way of avoiding rising protectionist sentiment in some countries.

The US leads (but will they be Trumped?)

The US topped the Index for the fourth year in a row, with 42 per cent of respondents more bullish on the American economy than they were a year ago. It’s seen as a lower-risk destination than emerging markets. 

However, a significant percentage of executives said they would reduce FDI into the US if that country elected a populist (far-left or far-right) president in the November election.

Western Europe remains attractive

Some 13 of the top 25 countries in the Index were from this region: Germany was fourth, the UK fifth and France eighth. A weaker euro and strong institutions help to attract funds.

China takes second

The country that spent a decade at the top of the Index is currently number two. However, investors are more cautious this year; some said they would reduce FDI into China if economic volatility persists.

Emerging markets fall from favour

They accounted for 70 of the countries in the 2010 Index and more than half of the countries in 2013. In 2016, though, developed markets account for 80 per cent of the top 25. A.T. Kearney says this likely reflects the fact that “developed markets are once again the primary contributors to real GDP growth worldwide”.

Asia-Pacific economies still do well

India re-entered the top 10, making it “the key exception to the overall trend of declining investor confidence in large emerging markets”, according to A.T. Kearney.

Singapore jumped to 10th, Japan and Australia rose in the top 10 and Taiwan and Thailand both entered the Index.

The consultancy also notes that emerging and frontier markets in Asia attracted the highest FDI inflows of any region in 2015, and expects that “Asia will continue to be a favoured
FDI destination.”

Read next: Which countries are investing the most in Australia?

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