a China-related selloff
In yesterday’s trading in New York, MPEL, a pure play on Macau casinos, fell steadily during the day end ended down 9.3%. WYNN, down more than 10% intraday, closed with a loss of 7%+. LVS, which had fallen almost 8% during the afternoon, closed down 5.3%. MGM, the third Las Vegas/Macau conglomerate–but a company with other issues–shed a “mere” 3.3% of its value.
That was just a warmup act for Hong Kong overnight. Wynn Macau fell more than 17% overnight and Sands China 14%. The “best” of the Macau casino performers among Hang Seng stocks was SJM Holdings, which lost 8.4%.
All these issues have given up about a third of their value in the past couple of months–although almost all remain strong year-to-date outperformers.
Why?
The ostensible reason is that growth in China may be slowing–maybe even to the point where, at the bottom, the country will be posting only a 5% GDP advance in a year or two. Casinos weren’t the only decliners on this worry. TIF fell almost 7% yesterday, after having been down over 10% intraday. In contrast, Signet Jewelers, which has only US and UK operations, rose slightly.
my thoughts
It seems to me that there’s no rational basis for the declines. Affluent Americans haven’t stopped buying at TIF, for example, despite the fact that the US economy is barely north of zero. Quite the opposite. Jewelry comps throughout the industry are at 10%+–and rising. So I don’t see the logic to the argument that because affluent Chinese citizens will have “only” 20% more income next year rather than being up 35%, their consumption patterns will change markedly.
Two caveats:
Bad markets aren’t rational. They’re emotional. In hindsight, they may make little sense. But that’s cold comfort if you get run over by a runaway locomotive barreling down a track where nothing logically should be.
The depth of these declines has got to suggest to a growth investor like me that I might be wrong in my assessment of future earnings.
what to do
A value investor would add to his positions.
A growth investor who owned none of these stocks would buy a little–and then watch for a while. A growth investor like me, who has a large enough holding in this sector already, tries to take the point of view of the seller to try to discover what he knows that I don’t.
On that score, I’m coming up empty so far. For me, then, the best course is to stay on the sidelines.
The next important data point will be the release of September Macau gaming revenue by the SAR government, possibly over the coming weekend.