WASHINGTON (AFX) – A group of banks and financial services companies from around the world forecast Thursday that private investment and capital flows to emerging markets will decline modestly in 2007 from record levels in 2005 and 2006.
The Institute of International Finance, whose members include 360 companies from 60 countries, said private investment from developed countries into 30 emerging markets, including China, India, Mexico and Brazil, would decline to $469 billion in 2007 from $502 billion in 2006 and a record level of $509 billion in 2005.
The figures include direct foreign investment, which is the purchase of physical assets and corporations; portfolio equity investment, or the purchase of stock; commercial bank lending; and nonbank private lending, which is mostly the purchase of bonds issued by companies in emerging countries, the IIF said.
The group said capital flows would likely decline from 2006 levels due to a slowing in global economic growth. The IIF projected that the U.S. economy would grow at a 2.75 percent rate, down from 3.25 percent in 2006, while Europe and Japan would each grow at a 2.25 percent rate.
The emerging markets should experience growth of 6.4 percent, the report said, down from 7 percent in 2006.
Still, the projected capital flows for 2007 would be more than double the roughly $200 billion of private investment in 2000, the IIF's report said. The group's estimate of $469 billion for 2007, if achieved, would be the third-highest level recorded by the IIF.
The group attributed the growth in investment flows in recent years to several factors, including improved economic policies in the developing countries and the increased participation of hedge funds and pension funds in emerging market investment.
Asia is expected to continue as a leading recipient of direct investment, particularly China, which is forecast to receive $55 billion of the $211 billion in direct investment. Turkey is expected to continue its rapid growth in foreign investment, the report noted, and is forecast to receive $22 billion in direct investment.
Members of the IIF include Citigroup Inc., Bank of America Corp., insurance company American International Group Inc. and the U.K. bank Barclays PLC, among others.