the Tang report’s conclusion
Macau gaming stocks began a late-August swoon when Karen Tang of Deutsche Bank, an influential securities analyst in the Hong Kong market, published a report on the casino stocks there. In it, she predicted that a sharp and protracted slowdown in spending by high-rollers in the Macau gambling market would soon begin. According to Reuters, she said that revenue growth would slow to +34% year on year in October 2011, +32% in November and +20% in December. Growth might shrink to as little as +10% during 2012.
Affluent Chinese were no longer spending on European-made luxury cars. She and the DB economics department felt that this was the harbinger of a widespread pullback in consumption by the wealthy. Finally, they thought, the affluent were succumbing to the Beijing government’s attempts to rein in economic growth on the mainland.
does the argument make sense?
In my opinion, no. There’s been no sign of falloff in any other area of Chinese luxury spending. Maybe the new cars were ugly, or the potential buyers had no garage space left. I’m not saying that Chinese gamblers aren’t going to spend less in Macau in the coming months. That could happen. I’m only observing that I don’t think the luxury car situation is evidence in favor of this conclusion.
I think Ms. Tang would have been better off arguing that the Macau casino stocks were fully priced for the best possible outcome and therefore had no near-term upside. That would mean that they could only go sideways or down–reason enough to take some profit in the sector.
Nevertheless, the Tang report was enough to drive the sector down very sharply in late August and throughout September. At one point, some stocks had lost close to half their value before beginning to rebound. …and then the Europe-related selling began.
what does all this mean for us today?
Well, the November Macau gambling market results were posted on the website of the Macau Gaming Inspection and Coordination Bureau on the afternoon of December 1st. Here they are:
|Monthly Gross Revenue from Games of Fortune in 2011 and 2010|
|Monthly Gross Revenue||Accumulated Gross Revenue|
Source: Macau DICJ
As you can see from the bold figures, after being wildly wrong about October growth prospects, Ms. Tang seems to have predicted the November results reasonably accurately.
Is there any significance to the November prediction? My guess is that there isn’t much meaning for the stock market, even if this turns out to be more than a lucky guess. For one thing, the stocks are much cheaper today than they were when the original report came out. For another, Beijing has just publicly signaled that it is reversing its money policy to favor GDP growth. So stocks should now be beginning to discount a reacceleration of the gambling business in Macau–not a slowdown.
It will be interesting to see how the Hong Kong market evaluates this situation. My hunch is that the mid-November lows will hold, but that the market will want to see at least the December market results before becoming more bullish.