There are “tangible signs of a weak Chinese economy” and they are likely to have a negative effect on demand for gaming in Macau, said a note from Wells Fargo Securities LLC.
Panic selling in stock markets in mainland China and Hong Kong on Monday spread to Europe and then the U.S., with the Dow Jones index in New York losing 1,000 points at the opening bell, rebounding later in the day, closing down 588 points.
Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up mainland China’s stock market say investment analysts. On Monday the Shanghai Composite Index had plunged 8.52 percent erasing all its gains this year. The Shenzhen Composite Index closed down 7.7 percent, while in Hong Kong, the Hang Seng index on Monday closed 5.17 percent weaker.
“We remain neutral on Macau gaming as the market adjusts to a ‘new normal’ of: (1) tighter government oversight, (2) tangible signs of a weak Chinese economy, and (3) a Macau recovery that is likely to be flatter than prior upturns,” said Monday’s note from U.S.-based analyst Cameron McKnight, referring to boosted controls by the local government and by Beijing on money flows to Macau, in the wake of the mainland’s anti-corruption drive, as well as to stock market turbulence.
“We continue to believe Macau revenues will be pressured this year with stabilisation at some point. When that occurs and growth resumes, we firmly believe we will not see another V-shaped recovery,” added Mr McKnight.
Wells Fargo expects casino gross gaming revenue (GGR) for August in Macau to show a 36 percent to 38 percent year-on-year decline. It notes that this would be down sequentially compared to July, and would be below what it terms “normal seasonality” of 4 percent growth month-on-month between July and August in other years.
Brokerage Sanford C. Bernstein Ltd in Hong Kong estimates that – based on current average daily revenue – Macau’s August GGR will be MOP18.2 billion (US$2.28 billion), representing a 37 percent decline judged year-on-year.
A note on Monday from senior analyst Vitaly Umansky and his colleagues Simon Zhang and Bo Wen stated: “The junket industry is seen to be continuing to downsize (right-size) in today’s VIP market.”
They added: “We believe the hyper-growth of VIP in 2013 and early 2014 was partly a bubble driven by some junkets extending gaming credit with low levels of risk management (i.e., extending credit to lower quality players). As a result of several negative occurrences in the space (a junket agent absconding with investor funds, blow ups in side-betting pools) along with a GGR decline, junket liquidity was squeezed. Junket liquidity and a weak collection cycle have led to a contraction in cage capital and lower turn of capital, partly leading to lower GGR.”
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Direct taxes on gaming collected by the Macau government in full calendar year 2018