Investment opportunities in China and India will soon be in hot demand again, said a Moody?s report on Wednesday.

The two emerging giants had remained appealing to international investors even during the gloomiest phase of the global downturn. Although risk aversion had slowed global investment in the past few months, investment managers had unlikely rearranged their priorities of having China and India among their top picks. Capital inflows moderated mainly as a result of liquidity constraints faced by businesses, said the report. The decline in China’s foreign direct investment inflows has been gradually narrowing. For the first half of 2009, FDI inflows were down 17.9% year-on-year to a still-massive figure of $43 billion. China is certainly the hottest investment destinations for global investors now.

In fact, the government’s strong determination to revive growth coupled with their proven ability to coordinate economic activity had already given investor confidence a significant boost earlier in the year. Therefore, upside potential of government-approved investments in China has far outweighed downside risks, explained the report.

“Nevertheless, the recent stabilization in corporate conditions may have also revived investment flows into China and India,?? it said.

Businesses that had to sit tight because of liquidity concerns or risk aversion are likely back in the game now. Speculation that some economies have already bottomed out, or have their trough in sight, has likely also encouraged bargain hunting for investment opportunities now.

Although India has yet to see a notable pickup in FDI inflows, net capital inflows in the stock market have been rising at a solid pace, which is also a clear sign of improvement in investor appetite. In line with the trend seen in China, India is expected to record gradual recovery in FDI inflows in coming months, especially since the Indian authorities are keen to promote public-private partnerships in supporting growth initiatives, said the report..

The return of foreign capital inflows will likely help the two emerging giants in the accumulation of foreign reserves. However, pressures on currency appreciation should also grow. The Indian rupee is expected to gradually regain strength in coming months, having nosedived last year amid rapid repatriation of funds by foreign investors.

In China’s case, the authorities will unlikely allow the yuan to strengthen so long as the global economic environment remains cloudy and exports are subdued. Therefore, China’s monetary policy for the next few months may steer toward containing upward pressure on the yuan.