Massive surge in global merger activity

The amount of cross-border investment through mergers and acquisitions soared last year to $720bn (£465bn) from $532m in 1998. M&A activity was the driving force behind a surge in total foreign direct investment to $827bn in 1999, the United Nations Conference on Trade and Development (Unctad) said yesterday.

Total foreign direct investment has grown steadily, undented by the Asian crisis in 1997. Since then authorities such as the International Monetary Fund have encouraged emerging economies to favour direct investment over far more volatile flows of investment in equities and corporate bonds.

Andrew Crockett, general manager of the Bank for International Settlements, said yesterday the main weapon against volatile financial flows must be strengthened domestic financial systems.

Addressing a Bank of England conference, Mr Crockett said: "Financial contagion... tends to affect first those that are most vulnerable. A key requirement is the improved functioning of markets and removal of sources of market failure. This requires an upgrading of standards across a wide range of areas."

At the conference George Soros, who this week said his funds would no longer place large-scale "macro" bets on the financial markets, argued that improved domestic policies could not prevent future crises.

Unctad reported that the biggest rise in M&A activity last year was in Western Europe. The US was the biggest seller and the UK the biggest buyer of foreign firms. Fewer privatisations in Latin America meant cross-border M&A flows into the developing world declined, but takeovers of Asian companies rose to $25bn from $16bn.