Oh my. Stocks of Macau’s major casinos have entered bear market territories.
Luck is running out for the high rollers of Hong Kong's stock market.After rallying an average 217 per cent in the last two years, shares of the six-biggest listed Macau casino operators have tumbled 20 per cent in 2014.
Five stated reasons.
1. Chinese government crackdown on illegal fund transfers and potential restrictions on the mobility of Chinese gamblers.
Speculation that China will crack down on illegal fund transfers and tighten visa rules has rattled investors after mainland tourists bypassing currency controls fueled a decade-long boom in Macau gambling revenue to levels eight times that of the Las Vegas Strip…Macau police said yesterday they arrested 12 people in February and March following an investigation into the use of a card-swiping device from China Union Pay Co., a state-backed payment card company. The crackdown is aimed at stopping gamblers from illegally using the devices in casino resorts to get cash for chips without buying anything, police said in an emailed statement.
2. Overcapacity
Investors are ''very jittery,'' Grant Govertsen, an analyst at Union Gaming Group in Macau, said by phone. The companies are spending billions of dollars to expand facilities that cater to tourists in the city of about 600,000 people, the only place in China where casinos are allowed.
3. Chinese government clampdown on corruption
President Xi Jinping, leader of the ruling Communist Party, has waged a campaign against graft since taking the reins of the world's second-largest economy at the end of 2012…President Xi's anti-graft campaign has curbed spending on restaurants and luxury goods while ensnaring dozens of businessmen and government officials.''While the anti-corruption campaign had no impact on the casino sector last year, that's starting to change,'' Sanft said.
4. Overvalued stocks.
Even after this year's declines, casino operators aren't cheap, according to Pruksa Iamthongthong, who helps oversee $US541 billion at Aberdeen Asset Management and said she doesn't hold any Macau gambling stocks.Wynn Macau trades at 19 times reported earnings, versus 10 times for the Hang Seng Index. MGM China has a multiple of 17, compared with 25 for Sands China, 23 for Galaxy and SJM's 15.
5. Slowing Chinese economic growth
China's economy is forecast to expand 7.3 per cent this year, the slowest pace since 1990, according to a Bloomberg survey of analysts.
The three year charts of the BIGGEST 6 Macau casinos listed at the Hong Kong Stock Exchanges (all charts from Bloomberg)
MGM China Holdings (HK:2282)
Galaxy Entertainment Group (HK:27)
Melco Crown Entertainment (HK: 6883)
Sands China Ltd. (HK: 1928)
Wynn Macau Ltd. (HK: 1128)
SJM Holdings Ltd. (HK:880) owner of Grand Lisboa
Such developments will have a negative spillover impact on the Philippine casino bubble.
As I warned a year back:
All these have been sold to the public as entailing growth in the tourism industry, which is an illusion.The mainstream ignores the fact that these casinos will be competing with the regional counterparts for essentially the same (regional) market…On the demand side, the fragile state of the global economy may mean that demand may evaporate when a crisis emerges…And worst, such cumulative bullishness comes in the backdrop of artificially lowered rates, which industry operators and the unwitting public presume will be everlasting…At the end of the day, basic economic logic says that all these yield chasing activities (whether the shopping mall, casino, housing and vertical projects) will end badly.
Pieces of the jigsaw puzzle seem as falling right into their proper places.
Again, Forewarned is Forearmed.
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