Gaming growth in Macao slowed to its lowest
levels in three years in July
. Revenue from gambling increased a mere 1.5% year-over-year, a far
cry from the 40-50% annualized growth seen over the past two years.
What does this slowing growth in Macao mean for investors?
[caption id="attachment_71091" align="alignright" width="300"
caption="Macao's Central District is popular thanks to its colonial
architecture"]
[/caption]
There is no use sugarcoating the obvious: July's numbers are not
good. However, this does not mean it's time to abandon stocks with
Macao-exposure.
The recent slowdown in growth in Macao was due to both a massive
typhoon that prevented gamblers from entering the Special
Administrative Region, as well as being a product of a faltering
global economy. As people in Mainland China feel less and less
confident in the Chinese economy (
FXI
,
quote
), discretionary spending on superfluous whims like gambling is one
of the first things to go. In particular, the VIP segment has felt
the pinch from the slowing global economy.
These conditions are unlikely to fester for too long however, at
least in China. With economists predicting the Chinese economy will
pick up again in late 2012,
analysts remain positive on the sector
with some predicting a return to growth in the low-teens for Macao
by the end of the year.
Starting in the fall, growth is expected to pick up again in the
former Portuguese enclave with the annual October holidays expected
to attract hundreds of thousands of gamblers from Mainland
China.
As a result, a number of casino stocks with Macao exposure have
traded at a discount recently
. With rumors of more Chinese stimulus on the way, casino stocks
had a strong week -- Melco Crown Entertainment (
MPEL
,
quote
) was up more than 7% yesterday alone.
With casinos staging a mini-rally over the past week or two,
investors keen on getting exposure to the sector may want to wait
for another pullback in the sector. Given the precarious state of
the global economy, there is likely to be a few sessions of
risk-off trading in the near future; this could be an opportunity
to get into names like Las Vegas Sands (
LVS
,
quote
) and Wynn Resorts (
WYNN
,
quote
) at a substantial discount.
Disclosure: Author and family are long MPEL, LVS, and
WYNN
