Tightening monetary policies in mainland China during 2017 are likely to have a knock-on effect for VIP gambling in Macau, says a report on China’s macroeconomic outlook, issued on Tuesday.
“We expect that tightening monetary policies for the rest of 2017, leading to reduced liquidity and a less robust real estate environment in China, will create headwinds to VIP [gambling] in 2017, which should lead to slower growth in VIP than has been experienced over the past few months,” said the report “China Liquidity: Who are the winners and losers when the tide is going out?” issued by brokerage Sanford C. Bernstein Ltd.
On Monday, Japanese brokerage Nomura said in a report that it expected the compound annual growth rate of the city’s mass-market table games gross gaming revenue to be 7 percentage points higher than that for VIP table games in the 2017 to 2019 period; at 9 percent compared to 2 percent for the high roller business.
Investment analysts frequently make reference to a correlation – typically on an up to six-month trailing basis – between liquidity in the China property market and the flow of credit in the Macau high-stakes gambling market. This is on the basis that VIP players can use property sales to pay off gambling losses or can offer property as security for gambling credit.
“Housing prices in China (particularly in the Tier 1 cities) had been recording strong double digit growth in 2016. While housing strength and liquidity are unlikely to reverse the structural decline the VIP segment has experienced, renewed strength in the real estate market (coupled with the liquidity growth…) has helped to jump start VIP demand that became evident in late August 2016,” said Sanford Bernstein.
But it added this was unlikely to be sustained, thanks in part to the influence of tightening monetary policy at central government level. The impact of “total social financing” or “TSF” on the Macau high-end gaming market – or rather the lack of such impact – is also raised in the brokerage’s latest China macro report.
Total social financing in the Chinese context is an economic barometer established by China’s central government. It sums up total fundraising by Chinese non-state entities, including individuals and non-financial corporate organisations.
“Correlation of TSF and VIP has broken down,” said Sanford Bernstein. “An implication is that more recently credit growth has been less influential on VIP [gaming] performance, but M1 (the very liquid aspect of money supply in China) has been more important. So in 2017, while TSF growth will continue to slow from previous years, M1 growth will decelerate more substantially,” suggested the report authors.
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Direct taxes on gaming collected by the Macau government in full calendar year 2018