Investment Flow (relative economic strength) Definition & Application Wiki
Last Updated by WikiWealth
Investment (or capital) flows is also referred to as relative economic strength forecasting: The focus is on investment flows, which follow strong economic growth trends that attract foreign investments, and thus, increase demand for the local currency.
Capital flows represent investments by countries or companies in another country. The flow of money to a particular destination tends to increase demand for the target destination's currency. This increase in demand causes the currency to appreciate (increase in value).
WikiWealth uses company valuations to determine the future flow of capital to a particular country. If an investment is undervalued, then WikiWealth predicts smart investors will find that company and invest their money. If the average company in a particular country is undervalued, then that country in general might increase their capital flows over time. WikiWealth is the first company to integrate a fair company valuation with the investment flow currency analysis.
Company valuations are a proxy for the many different characteristics that increase the value of a particular country.
WikiWealth's Critique of Foreign Direct Investment Flows
Foreign direct investment is in cash flow investment in another country's assets. The direction and size of FDI is important to understand the growth of production within a country and the potential currency changes from that flow. If FDI is expected to increase significantly, then the currency of the receiving country should increase in value; the opposite is also true.
WikiWealth's issue with FDI is it's unpredictability. The only long-term affect on a country would come from a substantial increase in the size and speed and FDI inflows. A better proxy for FDI changes is the flow of investment money into domestic companies with lots of potential. Therefore, the higher the potential for a country's businesses, the more FDI and demand for their currency.