During its days as a Portuguese colony, Macau was reputed to be a key center used by the mainland underworld to launder its ill-gotten gains. The main laundromat, as it were, was allegedly the collection of casinos run under a monopoly granted to the Ho family.
After the return of Macau to Chinese rule, the government moved quickly to break the monopoly and to guide the casino industry toward the Las Vegas model through technology transfer by granting casino licenses mainly to prominent US Las gambling operators with a Disney-esque approach to business.
A second political problem threatening the legitimacy of the Chinese Communist Party began to arise during the last decade as fabulously wealthy political insiders began to flaunt their riches through elaborate, ostentatious gambling jaunts to Macau. A crackdown ensued, which also served the long-term interests of Macau by strongly redirecting the emphasis of the Macau gambling industry away from high-roller VIPs toward middle class and upper middle class patrons. This, by the way, follows the development of the gambling market in the US.
During US trading hours yesterday, media reports from Hong Kong surfaced suggesting Beijing was beginning to crack down on middle class gamblers as well as VIPs. The stories said the daily limit that mainland residents vacationing in Macau are allowed to withdraw from their (renminbi-denominated) bank accounts through a local ATM would be cut in half from–MOP 10,000 ($1300) to MOP 5,000, effective tomorrow.
Given Beijing’s plans for Macau’s economic development, this report made little sense–although, realistically speaking, who knows what Beijing’s day-to-day thoughts are.
The US-traded Macau names immediately dropped by around a tenth in a flattish market. In today’s Hong Kong trading, Macau gambling stocks fell by 7% or so (expressing about half the negative sentiment in NY)–with the strongest (relative) performance by Ho-controlled SJM.
After the close of Hong Kong trading, mainland authorities “clarified” the initial report, saying that, yes, the per transaction limit on ATM withdrawals by mainlanders in Macau was being cut in half, but that the total daily limit would remain unchanged. No reason why the clarification took 12 hours to be made.
In early US trading today, Macau-related stocks have made up about a third of their losses from yesterday.
As a holder of Wynn Resorts, Wynn Macau and Galaxy Entertainment, I’m going to sit on my hands. If I held nothing, I’d be inclined to buy a bit. My preference would be for the Hong Kong names, however, for two reasons: the US market is being driven now by dreams of a domestic industrial revival, so foreign casinos aren’t at the top of institutions’ wish lists; and investors who dumped out their Macau holdings in a panic yesterday will be loathe to buy them back at a higher price, at least for a while.
I’d be worried about tightening capital controls as the govt desperately tries to slow the yuan devaluation:
Compared to this, Macau’s economic development would be at the bottom of their list of concerns.
Theres a chance they’ll be forced to do a large one-off devaluation. I’d be looking to buy China stocks after that happens.