Allure of emerging markets fails to dim Among all the wild swings in global investment since the 2008 crisis, one element has remained remarkably steady: the flow of foreign direct investment (FDI) from the developed world into emerging markets. While fund managers have blown hot and cold with their emerging market portfolio investments, US, European and Japanese multinationals have not strayed very far from their commitment to the world's emerging economies. According to a report from the Institute of International Finance , net FDI flows will this year hit around $513bn, half the total private capital inflow from the developed world into emerging markets. Next year, the figure could reach $536bn, close to the 2008 all-time record of $560bn. As important as the scale of this investment is its relative stability. Net FDI fell in the onset of the crisis to a 2009 low of $357bn before recovering to $526bn last year. But those swings are nothing compared with the volatility in total private capital inflows into emerging markets, which plunged from their 2007 peak of $1.2tn net to less than $700bn in both 2008 and 2009. These investments reflect the speed with which western and Japanese multinationals are expanding in emerging markets to compensate for weak markets at home and to capitalise on the economic growth prospects in leading emerging markets, notably China. Multinationals are responding to the fact that, even though economic growth has slowed almost everywhere since the heyday of the mid-2000s, emerging markets are still growing much faster than advanced economies. For example, for 2012, the International Monetary Fund is forecasting 5.3 per cent gross domestic product growth for emerging markets compared with a mere 1.3 per cent for the developed world. In round numbers, emerging markets have generated around 60 per cent of economic growth since 2008. If the eurozone now is into a deep recession, as is not impossible, the figure could rise to 75 per cent. As Shane Tedjarati, president of high-growth regions at Honeywell, the US engineering group, says: "Emerging markets have already emerged. They generate 20-25 per cent of sales and 50 per cent of sales growth. Even the slowdown in China, by far the largest emerging economy, will not change the positive outlook for FDI into emerging markets as a whole, says the Institute of International Finance. While Chinese FDI is stagnating, it is being offset by a big increase into investments in Latin America, where inward flows have doubled in five years. It is important not to lose sight of these flows, when the peaks and troughs of portfolio investment generate headlines. Thanks to monetary easing in the advanced economies, fund managers are ploughing huge amounts into emerging world financial markets, chiefly local bonds. The volumes are so big that the IMF warned last week of the possible consequences for the recipient countries if these flows suddenly went into reverse. The IMF advised emerging economies to respond by bolstering their banks, strengthening financial regulation, and running prudent fiscal and monetary policies. But in doing all this, governments should bear in mind the foreign direct investors, and the wide benefits they bring in importing technology and management skills as well as capital. First, they must ensure that the restrictions some countries, led by Brazil, have imposed on short-term capital flows do not harm their capacity to attract foreign direct investment. Politicians talk of currency wars at their peril. Next, they must limit the impact of the protectionist measures that have been passed during the crisis in both the developed and developing worlds - and resist calls for further restrictions on trade. Finally, they should remember that FDI is a two-way street. As companies from China, India, Brazil and elsewhere spread their wings, they are investing in foreign countries, including in advanced economies. So FDI is not only a matter of transferring jobs from the developed world to the rest of the globe. It also increasingly involves revitalising industries in the west, as the workers of Jaguar Land Rover, the British-based carmaker, now owned by India's Tata Motors will attest.