The global recession has been a wrenching experience to many, but it has also been kind to some – namely, emerging markets. For the first time since 1998, burgeoning economies have edged out developed countries to dominate the top 10 list of preferred investment destinations worldwide.

Corporate investors are particularly keen on heading to cheaper, higher-growth emerging markets like China, Mexico, and Eastern Europe, according to a September report by the Global Business Policy Council at A.T. Kearney.

For the second year in a row in 2002, China maintained its spot as the leader of foreign direct investments (FDI), or investments in physical assets made from abroad. It also ranked No. 1 in A.T. Kearney’s 2003 FDI Confidence Index, which monitors FDI intentions by surveying thousands of global business leaders, including CEOs, CFOs, and board members from 33 countries and 16 industries.

China’s FDI inflows rose 11 percent – from $47 billion in 2001 to $53 billion in 2002 – making it the most attractive investment location worldwide. The win seems even bigger when considering the climate of tight-fisted pessimism that lingers among global investors. The Global Business Policy Council report data tells the tale: overall global FDI flows declined for a second year in 2002, falling from $824 billion to $651 billion. And more than half of the global investors surveyed had a “more negative” outlook on the global economy than they did the prior year.

Crowding into the loser’s circle is Western Europe, which lost its status as the most attractive foreign investment destination. For U.S. investors, the United Kingdom, Germany, France, Italy, and Spain held third through seventh places, respectively, in 2002. In 2003, only Germany cracked the top 10, while all other Western European countries held lower rankings for U.S. investors. Among global investors, the U.K. dropped from third to seventh in 2003, France fell from fifth to eleventh, Italy went from sixth to twelfth, and Spain inched down from seventh to tenth in the FDI Confidence Index.

As their neighbors lost favor, Central and Eastern European regions – newly emerging and faster growing – won over foreign investors. Including Russia and Poland, FDI inflows for this region rose from $25 billion in 2001 to $28.7 billion in 2002.

Russia made some new friends, receiving, after China, the highest change in positive outlook among global investors. In 2003, about one in five global executives, and more than 25 percent of North American and European investors, viewed Russia in a more positive light than in 2002. For the first time, Russia made the top 10 most attractive markets in the Confidence Index, up from 17th place in 2002 to eighth in 2003.

Notably, despite FDI inflows that declined 28 percent from $5.7 billion in 2001 to $4.1 billion in 2002, Poland surpassed Germany and the U.K. to become the most attractive European market among global investors. Poland jumped from eleventh to fourth place in the 2003 Confidence Index.

Mexico won bragging rights in the report, standing out with noticeable gains in both FDI inflows and investor confidence. It jumped from ninth to third place, its highest ranking ever, in its confidence rating among global investors. With FDI inflows rising roughly 6 percent to $13.6 billion in 2002 (excluding the $12.1 billion Banacci-Citigroup merger in 2001), Mexico became the second most attractive investment location for U.S. investors. Thirty percent of investors have a more positive outlook on Mexico than last year and the future looks bright: more than 40 percent of investors in the U.S. will likely invest in Mexico in 2004.

The U.S. nabbed first place in one category for 2002: the biggest decline in FDI inflows among any large industrialized country. Inflows decreased 80 percent in 2002, down from $144 billion in 2001 to $30 billion in 2002. The U.K. was not too far behind, with a 60 percent decrease from 2001, from $62 billion to $25 billion.

Although global FDI flows are still declining, the rate has slowed significantly, from 56 percent in 2001 to 21 percent in 2002. Yet compared to the distant memory of 2000’s high of $1.4 trillion in foreign investments, a slowdown in declines is a pretty pale victory.