Is the Global Investment Boom Turning to Bust?
The global investment boom that started in 2017 was one of optimism and expectations, with significant increases across multiple markets. But recently, reports have surfaced raising questions about whether or not the boom is coming to an end. This article will explore whether the global investment boom is truly turning to bust, and assess the ramifications for investors and the global markets if it does.
Overview of the Global Investment Boom
The global investment boom of 2017 saw a surge in investments across a variety of industries, particularly in emerging markets. Total global investments rose by 31.3% to $7.2 trillion, the highest level ever recorded. According to the World Bank, FDI growth was strongest in China, followed by the United States, the United Kingdom, Brazil, India, and Mexico. Investments were strong across Europe as well, with France, Russia, and Germany all seeing a strong year for investment.
Factors Fueling the Global Investment Boom
There are several factors that have been fueling the investment surge in global markets. The most significant of these is the growth of private equity, a type of financing where investors buy into a company in order to gain a stake in its performance. Private equity investments have far exceeded any other form of finance in 2017, accounting for a full 26.6% of all global investments. Other factors contributing to the global investment surge include a strong currency market, the implementation of protective policies, and the adoption of more advanced technologies.
Signs of a Global Investment Bust
However, there are signs in the data indicating that the global investment boom is cooling off. The World Bank’s report stated that, while FDI growth was highest in China, it also experienced the steepest decline (down 13%) in the first quarter of 2018 compared to the same quarter the previous year. This was followed by a sharp decline in the United States (-10.5%) and the United Kingdom (-8.3%). In Europe, France and Germany also experienced declines of 7.8% and 7.3%, respectively. All of this has led to a marked slowdown in investment activity, leading some economists to declare the end of the global investment boom.
Risk Factors for Global Investment Boom Turning to Bust
Given the signs of a cooling off in the global investment markets, it’s important to understand the potential risk factors that could lead to a full scale bust. One such factor is rising interest rates, which could deter investment from companies and investors. The U.S. Federal Reserve has already raised interest rates four times in 2018, and if the trend continues, it could have a major impact on the global markets. Other risk factors include the ongoing trade war between the U.S. and China, geopolitical tensions in the Middle East, and the impact of Brexit on the UK and European markets.
Implications of a Global Investment Bust
If the global investment boom truly is turning to bust, there are significant implications for investors, businesses, and the global markets. The most immediate impact would be felt by those who have invested heavily in the markets in recent years. With a downturn in investments, their gains would likely be wiped out, leading to significant losses for those investors. For businesses, the impact could be even more severe, as their access to funding will be significantly reduced, leading to fewer investments and slower growth. Finally, the global markets could suffer significantly as well. With reduced investments, companies may be unable to invest in new technologies, hire new employees, or expand into new markets. This could lead to a stagnation of economic growth, leading to a downturn in the global markets.
While there is evidence indicating that the global investment boom is beginning to cool, it’s too soon to declare that it is turning to bust. Factors such as rising interest rates and the ongoing trade war between the U.S. and China are certainly weighing on the markets, but it remains to be seen if these factors are enough to cause a full-scale bust. For now, it’s best to keep a close eye on the markets and remain cautious when investing. With luck, the global markets can continue to grow in the coming months and years.
