What does an increase in portfolio investment suggest about an economy?

An increase in portfolio investment signifies that the economy is attracting short-term capital inflows. Portfolio investment refers to the purchase of stocks, bonds, and other financial assets by foreign investors. This often indicates that the economy is perceived as stable and potentially profitable, prompting investors to seek returns from the market.

When there is a rise in portfolio investments, it commonly reflects confidence in the country's financial markets, possibly due to favorable economic policies, growth prospects, or other positive indicators that make the market appealing to investors. This influx can also enhance market liquidity and help finance the growth of businesses within the economy.

In contrast to the other options, which suggest negative or limited investment scenarios, the increase in portfolio investment is inherently a sign of attracting external capital, reflecting investor optimism and economic engagement in global financial markets.