KUALA LUMPUR (April 28): Foreign direct investment (FDI) into Asia ex-China hit its lowest point since 2012 in 2024, with a near-term recovery unlikely due to global trade tensions, according to ANZ Research. The decline follows a cyclical pattern and is the worst since the 2008 Global Financial Crisis.

The collective net FDI into India, Indonesia, Malaysia, the Philippines, South Korea, Taiwan, Thailand and Vietnam dropped to -0.1% of gross domestic product (GDP) in 2024, ANZ said in a note on Monday.

ANZ believes the slowdown in global trade growth compared to the overall economy is driving the FDI decline and, with continued global trade tensions, a quick recovery in FDI is unlikely.

It is cautiously optimistic, however, about medium-term FDI potential in Asia excluding China, due to the growing economic divide between the US and China.

It pointed out that shifting supply chains, increased intra-region trade and closer economic ties with both China and the US could drive FDI if the right conditions are met.

Looking at FDI drivers, ANZ said traditional drivers (such as domestic market size, cheap labour and regulations quality) have been surpassed by product sophistication, export promise and service export potential — fronts which not all Asian economies have progressed meaningfully in the last decade or so, it noted.

“Going forward, manufacturing FDI will likely favour new-age goods, for which capacities are yet to build up to cater for rising global demand. The FDI composition itself is expected to skew further toward services, which are rapidly gaining global trade share.

“To remain relevant amid these trends and in the face of trade uncertainty, Asian economies will need to work harder to create and support ecosystems to attract FDI. Policy focus must shift to supporting factors such as research, intellectual property, labour skills and export infrastructure,” it said.

Net contributor economies (Thailand, South Korea and Taiwan) logged a net FDI of -1.6% of GDP in 2024 — 30 basis points below the long-term average. Net recipient economies (India, Vietnam, Indonesia, the Philippines and Malaysia) recorded a net FDI of 0.7% in 2024, versus the long-term average of 1.5%.

In 2024, Malaysia saw an FDI net inflow of RM47.4 billion and a direct investment abroad (DIA) net outflow of RM36.4 billion. In 2023, FDI net inflow stood at RM40.4 billion, while DIA net outflow stood at RM40.6 billion.

ANZ expects Asia ex-China's outward FDI to keep growing, driven by the global service sector's expansion, resource acquisitions and risk management by large companies in a divided geopolitical world.