A Booming Macau Casino Industry Contributing to Surge in US Stocks

The Chinese casino and gaming industry has seen tremendous growth and increasing popularity over the years. Macau already outpaced Las Vegas in terms of gaming revenue way back in 2010. It is the only destination in Greater China (which consists of China, Hong Kong and Macau) that has legalized gambling. Over the years, this destination has become a prominent gambling hub not only for China, but also for the rest of Asia Pacific.

The high-stake games in the private settings of VIP rooms in Macau casinos has generated much of the gaming revenues. With glittering architecture to match the excitement of gambling, Macau has been attracting a host of multinational foreign investors. Many of these large companies saw their stocks rising, with Macau registering its highest year-to-date revenue growth in June.

According to the data released by the Gaming Inspection and Coordination Bureau in Macau, total revenue of 23.8 billion Macanese Patacas ($2.95 billion) was recorded in June 2019, up by 5.9% from previous year. This was almost double of what analysts had predicted for the month.

Weathering the US-China Trade War

China has been facing the brunt of tariffs being imposed by the US since last year. The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI), which is the sentiment indicator of Chinese factory operators, contracted from 50.2 in May to 49.4 in June 2019, reaching its weakest level in five months. Macau’s growth comes despite declining factory activity and manufacturing output in China on account of the ongoing US-China trade war.

The growth in casino revenues led to an upward movement in stock prices, particularly US gambling companies like Wynn Resorts, Las Vegas Sands and Caesars Entertainment.

Taking the cue from previous three months of growth in the sector, investment analysts from the Japanese brokerage firm Nomura are predicting an increase of as much as 5% in casino gross gaming revenue (GGR) in July 2019.

Even JPMorgan Securities (Asia Pacific) is forecasting growth in GGR of 2-3% for July and August.

Macau’s Casino Industry on a Positive Path

Following Chinese President Xi’s corruption crackdown on casinos in 2014, many high net worth individuals in the country refrained from investing in the Macau casino sector. Over the past couple of years, however, Macau’s gaming revenues have got back on the growth path. The sudden decline in revenues and faltering negotiations with Washington had led to tourism officials thinking of diverse ways to project Macau, rather than a glittering gambling destination. In 2018, 35.8 million people visited Macau for tourism purposes, a 10% increase from the previous year.

Interestingly, this move away from being solely reliant on the gaming sector has helped Macau casinos generate increasing revenues. The Chinese government also encouraged diversification from the VIP private gaming rooms, planning to make Macau an entertainment capital, just like Las Vegas.

A new bridge connecting Macau and Hong Kong will also lead to an influx of tourists in the coming years. China’s rise as a wealthy economy and accumulation of citizen wealth should lead to a growing casino sector in the future. With an increase in Chinese middle-class income, this supply of money should remain consistent.

But the US-China trade war still threatens the economy and such developments hinder prospects of a region’s growth. Also, the Macau industry has lost a considerable number of customers to other Asian casino hubs like Singapore and Manila, after the anti-corruption campaign.

With many political and social factors affecting Macau’s success, the bottom-line is that it can have a flourishing casino industry. And, this industry can continue to contribute to the development of the economy and its people.