Global investment appeared subdued in August, with US and European investors, traditionally the biggest sources of global capital, withdrawing en masse to the safety of their domestic market as the Covid-19 pandemic and geopolitical tensions weigh on the outlook of the world’s economy.  

The fDi Index – which tracks foreign investor sentiment – stood at 597 points in August, thus erasing most of the recovery scored in the previous two months and falling below 600 for the first time since May, according to figures from greenfield investment monitor fDi Markets. On a yearly basis, the index was down by 26.94% from August 2019, fDi Markets figures show. 

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Flight to US safety

US investors have been uncharacteristically inward looking in August, thus strengthening a trend that has gained momentum since the outbreak of the Covid-19 pandemic. Although they remained the single largest source of foreign investment globally, they committed to twice as many US interstate projects (domestic projects announced by companies headquartered in a different state than the final investment destination) as outbound projects in August – 290 projects versus 136 projects, respectively – fDi Markets figures show.

Widening to the whole June to August period, US companies announced 913 interstate investment projects, against 523 outbound projects, fDi Markets figures show. Before the pandemic, US interstate projects very rarely resulted higher in number than outbound projects.  

This trend mirrors a global flight to safety that has unfolded across the whole investment spectrum since the outset of the global pandemic, with the US often being at the receiving end of this trend, also thanks to record-low interest rates and despite a sluggish economy. Wall Street has touched new highs after nosediving earlier this year, the housing market is still growing strong, and the country's share of global foreign direct investment has risen to more than 32% between January and August, against a historic average of 21.7%, fDi Markets figures show. 

OECD members as a whole, generally perceived as more stable investment destination because of their commitment to global standards of public governance and market institutions, made up a record 73.01% of global FDI in the first eight months of 2020, while the share of Brics countries (Brazil, Russia, India, China, South Africa) fell to a record low of 8.84%, fDi Markets figures show. 

Stay safe, stay local 

There is also early evidence that this global flight to safety is resulting in more regional foreign investment, with foreign investors, particularly those in the West, seemingly preferring to deal with like-minded partners rather than chasing opportunities in markets they are not familiar with. 

“I think investment may globally be much more about place-to-place relationships, as well as nation-to-nation dialogues,” Neil Rami, the CEO of the West Midlands Growth Company [WMGC] in the UK, told fDi in August

Investors from the European Union, EFTA countries [Switzerland, Norway, Liechtenstein and Iceland] and North America [the US and Canada] announced a total of 7914 projects between January and August. As many as 75.6% of them remained within Europe and North America, fDi Markets figures show, while only 13.3% of them went towards the Asia-Pacific region, and a meagre 2.3% went towards China.