US Reclaims Top Spot In Foreign Investor Confidence Index After 12 Years

 @AmruthaGayathri on June 26 2013 6:19 AM
US Economy
The U.S. economy expanded at a slower-than-expected pace in the first quarter of 2012, reflecting a deceleration in inventories and non-residential fixed investment that was partly offset by the biggest gain in consumer spending in more than a year. REUTERS

The United States has reclaimed, after 12 years, the top spot in an index measuring foreign investor confidence, as the country's economic recovery, for the first time since the 2008 financial crisis, makes steady progress, according to an annual survey released on Wednesday by consulting firm A.T. Kearney.

China slipped to second place this year for the first time since 2001, mainly due to concerns over rising labor costs, which is prompting investors to rethink longer-term investment strategies in the country's manufacturing strategies, the survey, which included responses from more than 300 executives from 28 countries between October and November last year, said.

Foreign direct investment inflows to the U.S., which was placed fourth in last year’s index, are still lower than what they were in 2008, but investor confidence showed an uptick as the country’s manufacturing sector was seen boosting productivity, while workers' wages are rising in developing nations.

Apart from China, emerging economies, India and Brazil, also made it to the top five in the index, as the traditional classification of such markets as high-risk/high-return has begun to shift, with developed markets becoming more volatile and unpredictable, the survey found.

Corporate investors, who participated in the survey, were of the opinion that emerging markets have the same level of risk as developed markets on various parameters "including macroeconomic volatility, consumer demand, regulatory barriers, and taxation.”

“The only category in which emerging markets are perceived to be significantly riskier is political volatility,” the study said.

“Rather than a temporary safe haven during economic upheaval, emerging markets are developing into a complement, instead of an alternative, to the developed world,” Erik Peterson, managing director of A.T. Kearney's Global Business Policy Council, said in a press release.

“The lines are blurring. Executives are deploying strategic planning tools to understand that the risk and reward of investing in emerging markets is converging with those of developed economies.”

However, the study noted, a broad spectrum of factors including weather events; the euro zone crisis and a stagnant economic recovery; rising productivity costs in China; and, the slow pace of economic recovery in the U.S., continue to hurt investor confidence in the short term.

Other than the U.S., Canada is the only developed economy that made it to the top five. And, despite the euro zone crisis, seven European nations made it to the top 20, with Germany ranking the highest at number 7. Mexico, with its healthy manufacturing sector, growing exports, and stronger trade links to the U.S., also made the top 10 and was ranked ninth.

Seventy percent of corporate investors surveyed said their investment budgets had either already returned to pre-crisis levels or expected them to do so in the near-term, while a majority said global growth will be slow over the next three years.

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