yesterday’s Hong Kong trading

In Hong Kong trading Tuesday, the major Macau gambling stocks moved sharply upward.  Wynn Macau, a recent market laggard, was the star, gaining 8.6%.  But even China Sands, which is up by over 40% since the Hang Seng peaked last August, rose by almost 6%.

Why?

the Karen Tang effect

According to Bloomberg, Karen Tang, a prominent Hong Kong-based leisure analyst who works at Deutsche Bank, reversed her relatively negative view on casinos in the SAR after meeting with company managements.

Ms. Tang sent these same stocks into a tailspin last August.  That’s when she issued a report arguing that a falloff in demand for high-end luxury cars that was then being experienced in China presaged an almost complete evaporation of growth in the VIP baccarat market in Macau.  Since high-stakes baccarat is the mainstay of the casinos there, this was an especially dire forecast.

Her idea was that the market would begin to slow in the autumn.  Economizing high rollers would make trips already planned–and possibly paid for–but wouldn’t book further visits.  The market wouldn’t contract.  But growth would nosedive, troughing late in the first half of 2012 at a year-on-year rate of, say, +15%, before beginning to rebound.

too pessimistic

I didn’t see the Tang report.  But it was extensively covered in the Asian press.  From those accounts, it seemed the evidence was flimsy and the conclusion much too pessimistic.  As it turns out, Ms. Tang was wrong.  That’s not the important thing (although I’ve been unable to refrain from inserting this conclusion in this post).

rebound already!

What is important is that after a mild slowdown to a “mere” 25% growth rate last December, Chinese high roller gambling in Macau is beginning to accelerate again.  That’s what Ms.Tang found out on her research trip to Macau and published in a note yesterday.

While I was looking at yesterday’s stock prices in Hong Kong while writing this post, I noticed an article from Forbes.com.  It reports the results of a research trip to Macau by a Citibank (never to be mistaken for a research powerhouse) analyst, who says the casinos indicate gambling in the SAR grew by about 40% year on year during the first 11 days of March. That’s substantially ahead of the 28% year on year growth of the market during January-February.  And it’s not that far below the 42% gain the market put up for full-year 2011.

According to Forbes, Nomura Securities (which makes Citi look good) thinks March gaming win will be up by about the same rate as the average of January/February (a two month average corrects for variable timing of the New Year holiday).

The bottom line, though, is that the market is a lot better than the consensus had thought–and is looking up.

stock market implications

casino stocks?…

Given all the lawsuits flying around, this may not be the time to load up on the Las Vegas gambling companies.  Personally, the litigation bothers me enough that I won’t buy more, but not enough to sell what I have.  It seems to me that the Macau subsidiaries are relatively insulated.  I like Steve Wynn.  And Las Vegas Sands is still cheap.

…or indirect plays?

The most important aspect of yesterday’s trading may be the signal that corporate magnates in China are starting to feel a lot better about themselves and their businesses.  The safer way to go is probably to look for sold-off US firms that have a lot of Chinese exposure.