As casino stocks fall, analysts insist Macau not immune to recession

TAGs: Macau, MGM China, sands china

macau-not-immune-recessionThe world’s financial markets refuse to calm down, and all six casino companies licensed to do business in Macau saw their shares stumble on Friday. Taking the biggest fall was Sands China, which dropped 11%, while SJM Holdings and Wynn Macau each fell just over 8%. Beyond the general market jitters, it probably didn’t help that Deutsche Bank issued a note Friday morning suggesting that Macau had, for the moment, peaked. “We disagree with the consensus view that Macau is immune to a recession.”

Die Deutschen arrived at this conclusion based on falling luxury car sales, a traditionally reliable indicator of the discretionary spending patterns of China’s financial elite. An increase in tight-fisted high rollers should mean less casino revenue, but Deutsche Bank thinks the increase in middle class Chinese gamblers flocking to Macau is “clouding the picture,” at least for the moment. The theory is that these middle class gamblers are seasonal, and when their ranks start to thin this fall, the true scale of the VIPs absence will become all too apparent. If/when the US and European economies tank (again), China’s own economy will cool down, and Deutsche Bank figures Macau’s annual growth will slow to 10%. Still, could be worse. We’re sure the folks in Atlantic City are looking at that growth figure and are confused because there’s no minus sign beside it…

Shares in MGM China Holdings Ltd. may have fallen over 5% on Friday, but the company’s half-year report is looking up, up and away. Net profit went from HK$ 397.3m last year to $1.9b (US$ 244m) in 2011, a rise of 380%. And as the casinos rake it in, so does Macau’s government. The special administrative region now reaps one billion US dollars every single month in casino taxes. That’s 50% more than the previous year, during which Macau’s government took in twice as much money as it spent. It helps that Macau’s tax rate is nearly 40%, compared to 5-15% in Singapore, 9% in Atlantic City and 7.75% in Las Vegas.

Beijing loves Macau’s self-sufficiency, but the authorities also view Macau as something of a stealth tax collector, relying on untaxed workers and affluent tax dodgers to empty their pockets at the baccarat tables, from which the government will eventually get its kick. Odd… China has more than its fair share of both taxes and tea, yet no Tea Party. Perhaps if Hu Jintao revealed a secret Hawaiian birth certificate…


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