The latest UnionPay crackdown has sent investors scurrying away from Macau casino stocks.
Bloomberg reported that stocks of Macau casino operators continued to free fall since last week over concerns that Chinese government officials had removed UnionPay terminals from pawnshops located in casinos on Macau’s Cotai strip.
Investors feared that the clampdown was part of the Chinese government’s strategy to control currency outflows from Asia’s economic powerhouse. For the fifth consecutive day, the index of Macau casinos fell by 1 percent with SJM Holdings Ltd shares leading the tumble at 2.8 percent.
Wynn Macau Ltd. opened strong on Thursday but its 1.8 percent early gain eventually swung to a 0.5 percent loss. MGM China Holdings Ltd. shares were also in the red, down 0.9 percent.
On Wednesday, the Monetary Authority of Macao tried to quell the rumors by stating that it didn’t bar the city’s banks from installing UnionPay terminals in any “particular industries.”
However, Macau’s financial regulator pointed out that “banks are obliged to perform adequate due diligence on, and ongoing monitoring of, the merchants in order to prevent the abuse of POS [point of sale] machines [for] illegal activities.”
Due to the monetary authority’s vague announcement, gaming analysts sensed that the regulatory risks will continue to rise. International brokerage JP Morgan analysts DS Kim and Sean Zhuang had already issued warnings to investors to be cautious in accumulating Macau casino stocks with lower valuation.
“Given the vague language of the release, it’s still unclear whether banks will return POS machines to those affected, or whether the clampdown will actually escalate further (such as into pawnshops and jewelry shops outside casinos and/or illegal foreign exchange providers),” the JP Morgan analysts said in their note.
Brokerage Sanford C. Bernstein noted that the reported currency controls brought significant risk, especially since approximately 25 percent of premium mass relied on UnionPay.
For Japanese credit debt watcher Nomura, the Chinese government’s message was very clear: the Macau government needs to beef up its money transfer regulations.