Ripples from China’s woes swaying Miami

By: Carla Vianna
August 25, 2015

Although Greece’s debt crisis and China’s volatile stock market are phenomena occurring thousands of miles away, Miami’s increasingly global business and financial communities feel the ripple effects of issues toying with the global economy.

While the contagion effect by Greece may be minimal, China’s ups and downs are felt worldwide.

“It’s not what happens in Greece, it’s what happens after,” said Tom Balcom, founder of 1650 Wealth Management, a private wealth management firm. “Are other countries going to leave also? Who absorbs the loss, and how will that affect the markets?”

Mr. Balcom spoke of fears surrounding a Grexit, or a Greek withdrawal from the eurozone. However, since Greece is such a tiny part of the currency union, direct impact would be minimal, local economists postulated.

The Greece economy is actually as big as that of the Miami metropolitan area. The European country’s gross domestic product was about $282 billion in 2013, while the Miami metro area had a GDP of $281 billion, fact-checking site Politifact reported.

“The effect is psychological,” said James Cassel, chairman and co-founder of Cassel Salpeter & Co., an investment banking firm. “The Greece economy doesn’t have a direct relationship with South Florida.”

China on the other hand is the world’s second-largest economy, and its increasingly volatile stock market coupled with the recent devaluation of the Chinese yuan has shocked markets across the globe. Fears that China’s economy is slowing have sparked heavy selling in all markets, the Wall Street Journal reported. It’s been a tumultuous week for the US stock market, which plunged Monday and felt a spot of relief Tuesday.

“Some of these currencies have an effect on the real estate market,” Mr. Cassel continued. “The weak Euro might mean less Europeans buying in South Florida.”

There’s a push from developers in Miami hoping to attract Chinese investors, perhaps to cushion an expected European and South American slowdown. Miami – often referred to as a safe haven for international money – may attract flight capital from those in China uncomfortable with the long-term prospect of the economy and Chinese government’s reactions to it, Mr. Cassel said.

As the Chinese currency is adjusted or manipulated, he said, it will affect both the purchasing power in the US and its export potential. When the dollar is strong against the yuan, the US can buy more Chinese products but it also stunts US exports, he explained.

On the flip side, he said, the US economy is strengthening, so more product will be absorbed domestically.

“To be overly concerned about a market that was up 150% and is now down 50%, to me, is a little bit naive,” said senior investment strategist Jonathan Hill with Gibraltar Bank about the Chinese market.

“The recent turmoil is unwelcome, but we have been consistent in anticipating this hike in volatility,” read an email Mr. Hill sent to his investors and clients last week. The email calls the situation a “short-term disruption” and points out that traditionally light summer-trading volumes can leave markets vulnerable to “outsized swings,” which is common in July and August.

Ultimately, the Chinese slowdown can affect the growth of international trade and investments with South Florida’s three major partners: Central America, South America and Europe, said Miami economist Manuel Lasaga. Repercussions will further spill over to the local economy if China’s instability affects global growth, he said.

Mr. Lasaga points to the lack of transparency in how the Chinese economy is faring in the midst of its apparent slowdown as a reason for increased volatility in the market.

“I do think China should continue to grow 6% to 7% this year,” he said. “It’s still going to add momentum to the global economy,” but the momentum will be slower than anticipated.