Developed markets held the top five spots in the AT Kearney Foreign Direct Investment Confidence index for the second year in a row as their relatively stable economic and regulatory environment became more attractive amid the spread of the coronavirus.
The US topped the index, published on June 16, for the eighth year in a row, as investors favoured its business-friendly regulatory environment and technological infrastructure, according to the report published by US consultancy AT Kearney.
Canada regained second place from Germany, attributable to a well-educated workforce and bright trade prospects, according to the report. Japan and France made up the rest of the top five, as the UK dropped two places to sixth, as question marks remain over its future trade relationship with the EU.
China dropped to eighth place in the 2020 rankings, its lowest ever position since the inception of the index in 1999. Nonetheless, it remains the highest-ranked developing economy, as one of only three emerging markets in the index's top 25 alongside the UAE and Brazil. India dropped out of the index in 2020.
Return to fundamentals
“The dominance of developed markets reflects a broader trend we have seen in the survey in recent years. The spread of Covid-19 appears to be encouraging investors to double down on this trend and seek a return to fundamentals. In the eyes of investors, developed markets are viewed as better equipped to weather the economic and political fallout of the Covid-19 crisis,” said Paul Laudicina, founder and one of the authors of the FDI Confidence Index.
Mr Laudicina also pointed out that the scope of Covid-19 was only just starting to become apparent at the time that the survey was in the field (January 27 to March 3). “We argue in the report that many investors broadly under appreciated the risks associated with Covid-19. As a result, we emphasise the importance of strategic foresight tools to help manage the risks of such external shocks in the business environment,” he said.
AT Kearney reports that climate change may become an even more central concern for corporate and policy leaders after the Covid-19 crisis recedes. Some 77% of investors said that climate-related risks are likely to affect their investment decisions over the next three years.
“Our survey suggests that climate change considerations are indeed front of mind for investors. Results show that climate-related risks are affecting the FDI assets of four-fifths of companies, and more than 60% of investors expect financial losses as a result of climate change,” said Mr Laudicina.