Emerging Market FDI Soaring

It has been a tough week for emerging market exchange-traded funds like Brazil (EWZ), South Afruca (EZA) and Taiwan (EWT) but investors can take some solace that investment and FDI flows remain robust.

The $1.21 billion that investors steered into emerging market funds and ETFs took year-to-date inflows up to $13.5 billion, over three times the full-year total for 2006.

Richard Gnodde, Co-CEO of Goldman Sachs International points out in the FT that Since 1990, cross-border capital flows have grown more than 10 per cent annually. Over that period, capital inflows to emerging markets have grown twice as fast as inflows to developed countries. Investment flowing to developing countries now accounts for nearly half of world total FDI inflows, compared with only 20 per cent in 1990. Even excluding China, the share doubled to 32 per cent.

A good example of this trend is the recent Industrial and Commercial Bank of China ’s $5.5bn investment in 20 per cent of Standard Bank of South Africa. It is the largest-ever overseas investment by a Chinese company, it is also the largest foreign direct investment in Africa.

While emerging markets are still somewhat tied to Europe and America, the trade and investment flows between emerging market countries are growing faster and should cushion any blow from any economic slowdown.