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Casino Stocks Up as China Plans to Boost Macau Economy

Finally, there was some positive news for the Macau gambling industry, which has been struggling for more than a year now. Share prices of casino operators like Las Vegas Sands Corp. LVS and Wynn Resorts Ltd. WYNN got a boost in Friday's trading session after the head of the Chinese government's liaison office in Macau, Li Gang, signaled that the central government is considering measures to support Macau's economy in all aspects, and is set to introduce favorable policies.

Though the government did not clearly mention any details, it plans to take steps that will help boost growth in the region. These would include approval of Macau's maritime expansion plans that are expected to aid shipping and tourism. Also, the steps could enable mainland Chinese cities to offer multi-entry permits.

Share of casino operators like MGM Resorts Ltd. MGM and Melco Crown Entertainment Limited MPEL also moved north following the news. Macau, the only legal gambling destination in China, is a key operating region for these operators.

Recent Developments

We would like to remind investors that these casino operators have been steadily losing momentum as the region has not been able to post growth in gaming revenues over the past 16 months. The latest decline of 33% for the month of September was largely the result of the anti-graft corruption campaign being run by the government.

There were some other unfavorable developments as well that further aggravated the decline. Neptune Group, a junket operator's shareholder, reportedly faced money laundering charges, while authorities investigated theft at another junket group, Dore Entertainment, which operates at Wynn Resorts' Wynn Macau casino.

Also, the news that Neptune Group might cut back on its business and lower its operations in the region if the situation in the gambling industry does not improve came as a blow for casino operators. Neptune is a loan facilitator for VIP gamblers, and the closure of its operations will leave less cash for people who come to try their fortunes. (Read more: Macau Junket Plans to Trim Operations, Casino Stocks Fall )

In fact, owing to some of these issues Fitch Ratings recently lowered its Macau gaming revenue forecasts for 2015. The firm now expects gaming revenues to decline in the range of 33% to 34% this year, higher than previous expectation of a decline of 29%. (Read More: Casino Stocks Fall as Fitch Cuts 2015 Macau Revenue View )

Government's Efforts to Boost Tourism

This is not the first time in the past year that government are focusing on ways to boost tourism and traffic in Macau. It was earlier reported that the government would allow smoking in Macau casinos if the operators can scientifically prove that the smoking rooms could protect its employees as well as guests from the harmful tobacco smoke. The easing of the smoking ban in casinos might provide some relief from the ongoing decline in revenues.

Meanwhile, per a new system implemented by the government from Jul 1, if travelers holding mainland China passports use Macau as a transit to other destinations, they are eligible to stay for seven days in Macau, up from five days permitted earlier. Both these steps are expected to improve visitation pattern in the region.

China's leaders have lately urged Macau to convert itself into a diversified entertainment hub as they believe that it would be wise for Macau gaming companies to move toward non-gaming activities. As of now, we can only wait and see when these steps are implemented and hope that they translate into material benefits for the struggling casino operators.

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LAS VEGAS SANDS (LVS): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

MGM RESORTS INT (MGM): Free Stock Analysis Report

MELCO CROWN ENT (MPEL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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