Chinese Economy May Boost US Investment

LOS ANGELES—The economic woes in China may prove to boost Chinese investment in the US markets, according to Shlomi Ronen, the founder of Dekel Capital and a financial markets expert. With the increased market volatility recently and the rumor that the Federal Reserve will increase interest rates soon, we sat down with Ronen to for an exclusive interview. Here, he tells us how the potential rise in interest rates will affect the market, why China's economic woes won't negatively affect the US economy and China's economy will potentially boost investment in US real estate.

GlobeSt.com: What are some of your current economic and financial concerns?

Shlomi Ronen: My focus is on the Federal Reserve and when they will be increasing the federal funds rate. The certainty of their pending increase has declined in recent weeks as speculation that the U.S. economy grew at a slower pace than expected. Last Thursday, it was reported that U.S. GDP increased by 3.7 percent in the second quarter, faster than the market has anticipated so we may yet see the Fed start to increase rates at their September meeting. This past weekend, Stanley Fischer addressed the Fed's annual Jackson Hole Conference. In his speech he indicated that the various forces that have kept inflation below the Fed's 2 percent benchmark are weakening and he expects the Fed to begin raising short-term rates in the near future.

GlobeSt.com: How will some of the recent issues in the Chinese markets affect the US market?

Ronen: The U.S. economy is not dependent on China. With exception to carmakers and retailers their economy has been closed off to U.S. companies. They are a large consumer of oil and other commodities, so we will likely see commodity prices stay low as their economy slows down. This, in turn, will keep a lid on construction costs as material prices will remain constant or even decline in the coming months. This is positive news for real estate developers.

With respect to long term rates, the lack of transparency of the Chinese government with respect to the state of their economy and their approach to addressing their slowing economy has resulted in a flight to quality which, in turn, has driven down treasury yields in the U.S. Again, this is positive for real estate investors who are seeking long term fixed rate financing. One caveat is that CMBS spreads widened significantly, 40-50 basis points just this past week. I believe this is temporary due to the lack of new issuances in August. There is up to $9 billion of CMBS loans scheduled to be securitized in September, at that point I expect to see spreads compress back to the pre-China crisis levels, in the 2 percent range.

GlobeSt.com: How will China's economic issues affect Chinese real estate investment in Los Angeles?

Ronen: Chinese capital has been focused on markets in New York and California. I don't expect that the slowdown of their economy will slow the rate of their investment in the U.S. as their capital outflows have been motivated by a flight to safety and diversification as much as seeking returns. As such, we may see an acceleration of Chinese investment in the U.S.

GlobeSt.com: How do you see these issues playing out in the long term?

Ronen: In general our economy seems to be healthy and growing at a slow to moderate pace. The given our limited reliance on China, I expect our economy to continue on its expansion path. I'm optimistic about the U.S. and commercial real estate fundamentals over the next one to two years. 

GlobeSt.com: What do you think CRE players need to consider about these issues?

Ronen: I believe that the near term effects on commercial real estate by the slowdown in China and the pending Fed rate increase will be negligible

GlobeSt.com: What is your economic forecast for the remainder of the year?

Ronen: The ongoing stability in the U.S. economy and the abundance of capital will continue to drive investment and development here in the U.S.