Reports that a senior mainland official has warned China’s economy faces a “severe and complicated” situation in 2016 are reasons “not [to] become more constructive on Macau” and its gaming industry, says a note from Wells Fargo Securities LLC.
“We believe [the]… comments are likely rooted in the belief that China’s macro story continues to be bleak… We believe signs of a macro rebound in China are necessary for Macau stocks to break out materially,” said the note from analysts Cameron McKnight, Daniel Adam and Robert Shore.
They cited a recent article in the China Securities Journal, attributing the remarks to Xu Shaoshi, chairman of China’s National Development and Reform Commission. The agency reports to China’s State Council and has oversight of macroeconomic issues.
The Wells Fargo team also noted however – quoting reports of discussions by other officials at China’s annual Central Economic Work Conference – that China planned to “gradually expand” the country’s fiscal deficit ratio. A fiscal deficit occurs when the difference between a country’s total revenue and total expenditure is negative.
“This [fiscal deficit ratio expansion] likely signals a more supportive fiscal policy stance, in our view. However as our macro contacts point out, it’s unlikely we see another massive Chinese fiscal stimulus package like the massive US$600 billion package from 2008,” said Wells Fargo, referring to a package of domestic infrastructure spending and other measures that China embarked on in response to the global financial crisis of 2008.
“This is very much consistent with our view as we believe any easing measures would be relatively minor when compared with the 2008-2009 stimulus, or the US$150-billion monetary stimulus package in 2012. We believe the government’s aim is to stabilise China’s economy, not light a fire underneath it. This is one of the reasons we remain on the sidelines on the Macau names,” explained the brokerage’s analysts.
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"We like Japan. We like all areas…but it is a matter of what the local government and the local people really want"
Ted Chan Ying Tat
Chief operating officer of Galaxy Entertainment Japan