THIS year, for the first time, more than half of the world's foreign investments will flow into emerging markets. Before, industrialised nations received most of the investments.

Asia in particular, the first continent to recover from the global financial crisis, is set to benefit. Despite the crisis, India and China will grow this year by more than 6 per cent and 8 per cent, respectively, while the economies of a majority of industrialised nations are projected to shrink.

The World Investments Prospects Survey 2009-2011, released recently by the United Nations Conference on Trade and Development, listed China as the most favoured investment destination. India is third, and in second place is the United States.

The growth prospects of emerging markets as well as availability of cheap labour form the most important reason for this reversal.

Political and economic stability is also an important factor. Among the top 15 destinations for foreign direct investment, 30 per cent are from East and South-east Asia, making this region the top priority among investors.

Hong Kong and Taiwan are not among the top 15, with both places having become even more economically dependent on China.

But though emerging markets are now receiving more foreign direct investment (FDI), the overall investment is a lot less now than before the global economic crisis. Since 2007, the last unclouded year before the crisis hit, global FDI has literally been halved.

Also, without China and India, the performance of emerging economies would have been a lot less impressive. According to the latest Economic Outlook of the International Monetary Fund, developing countries as a whole will grow 1.5 per cent this year and 4.7 per cent next year. But China will grow by 7.5 per cent this year and 8.5 per cent next year; and India by 5.4 per cent this year and 6.4 per cent next year.

A number of Western corporations are playing it safe in the current insecure economic climate and have begun to invest in regions that have proven to be more resistant in the crisis than others. That in part explains the shift of FDI from developed economies to emerging markets.

The German chemical giant BASF, for instance, surprised observers in September when it announced that it will continue to invest massively in China. So too will Audi AG, which recently opened a new factory in China and was able to achieve record sales in the country.

FDI in China was down by 14.2 per cent during the first nine months of this year, compared to 2008, but rose by 18.9 per cent in September. According to Deutsche Bank, China is the top FDI destination in Asia, attracting about US$70 billion (S$97 billion) this year. India is second at US$30 billion.

For a long time, India lagged behind China in the FDI ranking. But this is changing. According to Morgan Stanley, FDI in India increased more than eight times in eight years, from US$4.03 billion in 2000 to US$35.17 billion last year. India's domestic market, like China's, offers opportunities and is becoming increasingly attractive to foreign investors. Most FDI in India, about 20 per cent, goes to manufacturing, followed by real estate and financial services, each at about 15 per cent.

As in China, the automotive sector is playing a major role in attracting FDI to India. Italian car maker Fiat, for instance, intends to buy vehicle components worth US$2 billion from India. And even the German Volkswagen, which had focused on the Chinese market for the last 25 years, has concluded now that 'India is one of the fastest growing automotive markets worldwide'. It has decided to build a US$300 million green-field vehicle manufacturing facility in Maharashtra state. And Japanese tyre manufacturer Bridgestone will build its second plant in India in Pune, an investment worth US$421 million.

India's share of global FDI has increased from 0.3 per cent in 2000 to 2.4 per cent last year. Within Asia, India's share of FDI inflows has increased to 10.6 per cent last year from 2.4 per cent in 2000.

Even on the philanthropic side, investments are gaining impact in the region. One example is the Clinton Climate Initiative, which will invest US$10.3 billion in Gujarat, India, to build the world's largest solar power energy facility.

According to the Economist Intelligence Unit, this trend will continue over the long term: Emerging markets will receive a bigger slice of the foreign direct investment pie than industrialised countries.

Frank Sieren is a German commentator on China, based in Beijing. His brother Andreas is a specialist in international relations and development aid.