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Investors trim Macau bets as money curbs dim growth prospects
June 3, 2014 / 9:03 PM / 4 years ago

Investors trim Macau bets as money curbs dim growth prospects

HONG KONG, June 4 (Reuters) - Global investors are paring their bets on stocks geared to Macau, the world’s casino capital, after a raft of regulatory curbs sparked concerns about slowing revenue growth in the next few months.

Macau, a special administrative region like neighbouring Hong Kong, is the only place in China where citizens can legally gamble in casinos, and analysts say its growth prospects in the longer term remain strong, due to its proximity to the mainland. Eight new resorts are also set to open within three years.

But while annual revenues reached a record $45 billion in 2013, elevating the tiny territory high above rivals, investor sentiment has soured after the Macau authorities said they would restrict next month the use of China’s state-backed UnionPay card in a bid to tackle money laundering.

A smoking ban on casino gaming floors, to be implemented by October, and restrictions on transit visas may also reduce the number of visitors, analysts say.

“The anti-money laundering crackdown is affecting people going to Macau and can be turning point for the sector,” said Benjamin Chang, chief executive of hedge fund LBN Advisors that invests $800 million in China.

“From a growth and valuation perspective, they are probably beyond the high growth phase. Macau seems to be a less sexy sector right now,” said Chang, whose fund has mostly wound up its investments in Macau’s gaming sector.

Several fund managers and other institutional investors contacted by Reuters did not disclose their investments in Macau, but money managers such as Vontobel Asset Management and Capital Research Global cut exposure to Sands China in the first quarter of this year, according to data from Thomson Reuters.

U.S. fund manager Waddell & Reed Financial Inc also shifted its remaining stake in Macau-based Sands China into parent Las Vegas Sands last week. Both are controlled by U.S. billionaire Sheldon Adelson..

Hong Kong is the biggest market for gaming stocks. There are 20 listed companies with a market value of $179 billion, ahead of the United States where 24 companies with a total market value of $116.9 billion are listed, according to data from ThomsonReuters StarMine.

Hong Kong-listed casino and gaming stocks have on average fallen 12 percent in the year to May 29, more than double the 5.7 percent average drop in global peers. The decline has pulled back the forward 12-month price-to-earnings ratio of Hong Kong-listed shares to 16.4 times versus 18.2 times for global peers.

The drop is a far cry from last year, when Hong Kong casino and gaming stocks added more than $100 billion to investors’ wealth after stocks on average more than doubled in value.

“The market is lowering its exposure,” said Jimmy Weng, a portfolio manager at hedge fund Genesis Capital Investment which invests in China. “The uncertainty is leading many funds to go underweight. We have no exposure to Macau,” he added.

A Portuguese colony until 1999, Macau earns the equivalent of Las Vegas’ annual haul in less than two months, but the pace of gaming revenue growth started to slow last year, largely due to a shrinkage in the lucrative VIP segment, made up of high-rollers from the mainland. In May, casino revenues rose 9.3 percent year-on-year, lagging analysts estimates of 13-15 percent growth.

The VIP sector, which used to account for 70-80 percent of overall revenues, has been eclipsed by the so-called mass market sector of middle class Chinese who now account for more than a third of total revenues.

Hedge funds “see the whole Macau gaming sector peaking”, said Theodore Shou, chief investment officer of Skybound Capital, citing interactions with several fund managers.

“A lot of them have already trimmed their position significantly,” he said. “Some managers even started shorting the sector from early this year.”

Galaxy Entertainment Group Ltd, the second-biggest Macau casino operator, is a stock hit by short sellers. About 6 percent of its shares that can be borrowed are out on loan, according to data from Markit. While that is still small, the borrowing has gone up from about 2 percent in late April.


The mass market visitors that now frequent Macau rely heavily on the use of UnionPay cards to get gambling money, as Chinese nationals are only allowed to take out 20,000 yuan ($3,200) in cash per day.

Visitors get around this limit by pretending to buy expensive items on their cards. However, new guidelines imposed by the Macau authorities, which takes effect on July 1, urge banks to restrict the use of UnionPay.

Investors concerns about the amount of money coming into Macau were also heightened after the arrest of an investor in a major junket group in April. Another junket operator also disappeared with around 10 billion yuan.

Junkets are companies or individuals that offer millions of yuan in credit to gamblers, helping them bridge currency restrictions and handle any debt repayments.

“There are a lot of headwinds against the industry right now, all coming together,” said Weng of Genesis Capital.

$1 = 6.2399 Chinese Yuan Reporting by Farah Master and Nishant Kumar; Editing by Denny Thomas and Miral Fahmy

Our Standards:The Thomson Reuters Trust Principles.
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