Macau casino stocks are making a comeback since President Xi Jinping launched his anti-corruption campaign.
Bloomberg reported that Macau casino stocks have clawed their way back to the highest level since August 2015 as worries over Beijing’s anti-corruption campaign wanes.
Hong Kong-based financial institution Sun Hung Kai Financial noted that the recovery of VIP takings and the rising demand from the mass market has given casino stocks a new lease of life.
Galaxy Entertainment Group shares, which plunged more than 65 percent at the height of the anti-corruption campaign, have surged 60 percent in the past 12 months, the third-best performance on Hong Kong’s HangSeng Index.
“Anti-corruption remains a concern to those stocks, but it’s no longer a top concern,” Sun Hung Kai Financial analyst Kenny Wen said.
True enough, Macau casino operators have been focusing lately on attracting the mass market instead of relying on its VIP segment. In the third-quarter last year, Sands China and Wynn Macau made risky bets amid a gambling slump to open multi-billion dollar casino resorts.
Turns out, their bets have been paying off.
The number of high rollers and leisure gamblers flying to Macau propelled the former Portuguese enclave’s casino revenue growth by 18 percent in March, the fastest pace in eight months.
A resurgent mass market is also creating a positive spillover in other industries. Luxury imported items are again thriving, surging 28 percent in December last year while makers of pricey spirits, which became a symbol for official excess, are trading near multi-year highs.
“The structure of demand has fundamentally changed,” said Sanford Bernstein analyst Euan McLeish. “What has become increasingly apparent is that there is underlying demand from individuals. That’s really why the interest in those stocks picked up so much.”
But Arthur Kwong, Hong Kong-based Head of Asia Pacific Equities at BNP Paribas Investment Partners Asia Ltd, warned that the winning streak of casinos will end should the State Council implement tough measures to curb capital outflows.
Some analysts like Daniel So of CMB strategist International Securities Ltd. are concerned that the rise of stocks have been going too far, too fast.
“Casino stocks have almost fully priced in an industry recovery in 2017 so shares may end the year roughly unchanged,” So said.
