Brokerage Morgan Stanley Asia Ltd says recent increased regulatory oversight by Chinese authorities regarding a number of sectors is “less relevant” to the gaming industry, including the Macau market.
China has recently tightened regulations in the technology, property and education sectors. It has also engaged in a concerted effort to police the technology sector over improper antitrust and consumer protection practices, according to official statements.
In a recent note, Morgan Stanley said investors in gaming stocks are “concerned about regulatory tail risk”, similar to what has happened to private sector companies operating in other industries in China.
“We believe the recent launch of China’s ‘common prosperity’ plan is not supportive of gaming in Macau, but a hardened stance on gambling (especially overseas) is not new either,” wrote analysts Praveen Choudhary and Gareth Leung.
The “common prosperity” plan is Beijing’s campaign to reduce income inequality in the country, as announced by President Xi Jinping.
The Morgan Stanley analysts said in their memo, referring to Macau’s gaming sector: “We remain constructive in the hope of the border opening and eventual extension of licences, both of which we expect in second-half 2021.”
According to the brokerage, the Macau gaming stocks have underperformed the Hang Seng Index by 15 percentage points since the May holiday peak traffic. “We think initial underperformance can be explained by new Covid cases in Guangdong in June and no travel relaxation between Hong Kong and Macau.”
China first introduced an overseas gambling blacklist in August 2020, which was expanded twice this year. It has also amended its criminal law – with effect from March 1 – so that anyone who “organises” trips for mainland Chinese for the purpose of overseas gambling will be deemed to have committed a criminal act.
But the mainland authorities allowed the restart in September last year of applications for the Individual Visit Scheme (IVS) exit visa to Macau. “We think this suggests China will continue to allow gambling in Macau despite potential regulatory headwinds,” said the Morgan Stanley analysts.
They added: “We believe base and middle mass/slot segment will benefit over VIP/premium mass since the ‘common prosperity’ plan may suggest more wealth redistributive policies in future.”
In a previous note issued last week, the brokerage said it expected the licences of the city’s six casino operators to be extended “for a further three years due to lack of time for open bidding.” The analysts did not elaborate on the reasons for the three-year timeline.
The current six Macau casino concessions are due to expire in June 2022, unless the authorities grant a form of limited extension as permitted under existing Macau gaming law. Such extension can be in increments, up to a maximum of five years from the original 20-year term.
The Macau government has said the city’s gaming framework needs to be updated as a linked issue to a public tender for fresh gaming rights. It aims to submit proposed amendments to the current gaming law, to the city’s Legislative Assembly, only by the fourth quarter this year.
