China’s anti-corruption scrutiny may ramp up: Wells Fargo

Oct 01, 2014 Newsdesk Latest News, Macau, Rest of Asia, Top of the deck  

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Shares of U.S.-based casino operators with a presence in Macau, including Las Vegas Sands Corp, MGM Resorts International and Wynn Resorts Ltd, went up on Tuesday likely because of a report by official Chinese media that Beijing would wind down an anti-corruption drive within the ruling Communist Party.

Some investors believe the announcement removed a headwind for Macau’s casino industry. The city’s VIP market has worsened in recent months as high-rollers shy away from casinos, according to gaming analysts.

China’s official news agency Xinhua said the anti-corruption campaign – launched in June last year – aimed to “clean up undesirable work styles such as formalism, bureaucracy, hedonism and extravagance”. “The campaign has reached its goals… but party organisations at all levels must not let up on the drive to improve working practices and should continue to deal with the problems exposed by the campaign,” said a statement by the Political Bureau of the Communist Party quoted by the report.

Wells Fargo Securities LLC however said the “massline campaign” cited in the article was a specific bureaucratic campaign aimed to form closer links between officials and the public, “not the broader anti-corruption campaign”.

“Our China macro contacts confirm the announcement referred to a very specific anti-corruption programme and not the broader anti-corruption drive that has been a cause of the slowdown in Asia luxury sales and Macau gaming,” Wells Fargo analyst Cameron McKnight wrote on a note issued on Tuesday.

Recent reports have suggested that the corruption crackdown in mainland China is likely to be the main driver of the decline in gross gaming revenue (GGR) in Macau due to its apparent depressive effect on demand for VIP gambling.

Hoffman Ma Ho Man, deputy chairman of Macau casino investor Success Universe Group Ltd, said last week the anti-corruption measures in mainland China have restricted large money transactions, making it harder for Macau junkets to operate.

On Tuesday, Macau’s Secretary for Economy and Finance Francis Tam Pak Yuen said September’s GGR may drop by 12 percent to 13 percent from a year earlier.

In Tuesday’s note, Mr McKnight said an increase in the anti-corruption drive was possible in the near future. “Many of the task forces set up to investigate potential corruption have yet to release their findings. When these task forces do report back, our contacts believe anti-corruption scrutiny may ramp even further,” he wrote.

Wells Fargo lowered its rating on the large-cap gaming sector from overweight to market weight in late September.

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