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Cautious investors

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Businesses worldwide cut back on overseas investments in the first half of 2012, the Wall Street Journal reported. That is a vivid sign of the economic slowdown spanning the globe.

Foreign direct investment dropped 8 percent to $668 billion for the first half of the year when compared to the same period in 2011, according to the U.N. Conference on Trade and Development.

Emerging markets such as Russia and India saw considerable declines in investments, as did the United States. Interestingly, China passed the United States as the chief target for foreign investment during the period in question. That has not happened since 2003.

A trend is clear: since 2008, developing economies have become more appealing targets for investment as interest in developed economies has waned. Foreign investment in both types of economies “matched” for the first time, according to a recent report.

Businesses are less eager to make investments due to the unsettled nature of the world economy and “political uncertainties,” the Journal noted.

One uncertainty is the U.S. presidential election. But another is leadership change in China, which will occur next month. The European debt crisis is another factor causing investor caution.

Much investment is going to developing economies because of faster growth rates than more advanced economies.

Foreign investment into the United States reached more than $300 billion in 2000 before falling in the recession that followed. Investment surged in 2008 before dropping yet again during the economic downturn.

“With the world slowing, foreign companies don’t have the cash flow they once had and they’re quite nervous about what their future is going to be,” said economist Martin Baily of the Brookings Institution.

Foreign investment in the United States reached $57.4 billion in the six-month period. It was $59.1 billion in China.

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