Capital Flows to the Emerging market Economies

In 2006, direct investment in the emerging market countries is projected to rise to $170 billion from $158 billion in 2005. Industries expected to be at the forefront of direct investment growth are computing and internet technology, public utilities, transportation and tourism related services, electrical products, machinery & metals, mining & petroleum.

On the regional basis, the only significant increase in direct investment is expected to take place in emerging Europe where countries like Poland and Romania are likely to see pickup in direct investment flows. Russia is projected to experience a sharp positive reversal in flows this year but the $5.6 billion in flows forecast will fall short of those received by half the countries in the region. China will continue to receive the vast majority of direct investment in the Asia/Pacific Region. Net inflows could increase to $51 billion this year from $50 billion in 2005. In Latin America, only Mexico is expected to see increase in net direct investment this year, accounting for one-third of such flows to the region.

After reaching a record high of almost $62 billion in 2005, emerging market portfolio equity investment is projected to accelerate further this year to nearly $71 billion. The Asia/pacific region is expected to amount for 60% of total net equity portfolio flows to emerging market countries this year. In emerging Europe, net portfolio equity investment is expected to increase to more than $19 billion in 2006 from $9.2 billion in 2005. In Latin America, net inflows of portfolio equity investment in 2006 are projected to be cut in half from last year's $5.5 billion.

Reproduced with permission from BABi London