Strong commodity prices in China have helped “shore up” the credit-fuelled Macau VIP gambling sector in the fourth quarter of 2016 and first quarter this year, but such support “is likely to evaporate by mid-2017,” suggests a report from brokerage Sanford C. Bernstein Ltd.
“In recent quarters, China has shown increasing monetary expansion. TSF [total social financing] and consumer credit growth has been strong in 2016, but there are beginning to be some signs of slower growth,” said the institution in its Tuesday 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.
In February Macau’s casino gross gaming revenue (GGR) rose by 17.8 percent year-on-year, according to Macau government data.
February’s monthly casino GGR tally was the highest for the Macau market since January 2015.
While the official split between mass-market play and that for VIP for the first two months of this year has not been issued by the authorities, a number of investment analysts have mentioned – quoting unofficial industry returns – recent growth in VIP play’s overall contribution to casino GGR.
“Historically, liquidity in China has played an important role in VIP revenue (and to an extent premium mass as well),” said Sanford Bernstein.
Investment analysts have previously made reference to a correlation – typically on an up to six-month trailing basis – between liquidity in the Chinese economy and the flow of credit in the Macau high-stakes gambling market.
“China M1 money supply growth (along with other credit growth metrics) is a leading indicator for VIP growth,” stated Sanford Bernstein in its latest report.
M1 is a commonly-used measurement for the most liquid portions of money supply of a country. It includes physical money — in paper or coin format— and assets that can be converted to cash rapidly.
Sanford Bernstein noted: “As leading indicators, a slowing credit environment may not create headwind in high-end play growth until second half 2017.”
The institution added that January’s M1 year-on-year growth of 14.5 percent had been “the lowest” monthly growth rate since October 2015.
Tightening monetary policies in mainland China during 2017 were likely to have a knock-on effect for VIP gambling in Macau, said a previous Sanford Bernstein report on China’s macroeconomic outlook, issued on February 21.
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"VIP growth [in Macau] is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14"
Cameron McKnight and Robert Shore
Analysts at Wells Fargo Securities