U.S. tops confidence survey on foreign investment, displaces China

By Daniel Bases and Manuela Badawy

NEW YORK (Reuters) - After a 12-year hiatus, the United States reclaimed first place among top executives in a survey on foreign direct investment sentiment, displacing China as it makes progress toward sustainable and steady economic growth, a study showed on Wednesday.

The United States jumped from fourth place in 2012, according to the 2013 Foreign Direct Investment Confidence Index, a survey of more than 300 executives from 28 countries by global consulting firm A.T. Kearney.

The survey, conducted between October and November of last year, highlighted executives' views that U.S. workers are becoming more competitive and, until recently, the weakness in the U.S. dollar helped improve the country's exports profile.

Combined with a recovering housing market and the surge in production of unconventional oil and gas, the United States took back the top spot for the first time since 2001 despite still serious fiscal policy uncertainty and sizeable debt issues.
More than half the respondents believe the global economy will recover from the financial crisis and recessions in 2014 (26 percent) and 2015 (28 percent). That is a shift in sentiment from 2010 when 42 percent believed the recovery would occur in just one year.

"Investors are demonstrating more mature judgment about what the risks are and what the expected returns will be and how long it will take the global economy to recover," Paul Laudicina, chairman emeritus of A.T. Kearney, told Reuters in a telephone interview.

The FDI Confidence Index ranks countries on how political, economic and regulatory changes will affect foreign direct investment.

The United States is the top recipient of FDI inflows for a sixth consecutive year, according to the survey.

Respondents were most optimistic about the United States' prospects, with 63 percent expecting some economic growth, compared with 62 percent who believe Europe may have no growth or return to recession over the next three years.

The survey found that roughly 90 percent of investors report the euro zone crisis has or will impact their FDI decisions.
Rounding out the top five in the confidence index are Brazil, Canada and India.
CHINA'S DROP

Factors that impacted the outlook for FDI into China include a doubling of labor costs since 2007, rising transportation costs and the appreciation of its currency, the renminbi, which made it less competitive against other low-cost alternatives such as Mexico.

The push by China, the world's second-largest economy, for the last 30 years to be a manufacturing powerhouse has given way to trying to create a more consumer-driven economy, "sparking internal debates about companies' future plans," the survey said.
Investors might be more upbeat today about the world's prospects than years past. Yet they are holding back investments waiting for a clearer solution to current risks such as the economic slowdown in China and the euro zone debt crisis.

The euro zone is mired in a recession that started out of the U.S. financial crisis of 2008-2009.

"I expect when investors look at an individual investment play and opportunity, most cite macroeconomic uncertainty. In fact 71 percent say reasons my company's FDI flows have not recovered to pre-recession levels is because of macroeconomic instability or uncertainty," Laudicina said.

While investors are holding back investments due to worries about the global macroeconomic situation, companies are amassing record cash holdings.
U.S. firms in the S&P 500 Index held $900 billion in cash at the end of June 2012, according to the report, up 40 percent from 2008. Japanese cash rose 75 percent since 2007.
"This surplus could fuel more rapid global growth when the macroeconomic clouds finally dissipate," the report said.

Even while the world economy looks to the United States for economic leadership given its massive monetary policy stimulus program, perceptions of risk between emerging and developed markets are equalizing, the survey said, in nearly all areas save for politics.

"In area after area, from macroeconomic volatility and consumer demand to regulatory barriers and taxation, investors say that developing markets have roughly the same level of risk as developed markets," the survey said.

(Reporting by Manuela Badawy and Daniel Bases; Editing by Leslie Adler)