On Tuesday, Deutsche Bank AG issued an update on the year-on-year growth outlook for Macau’s gross gaming revenue (GGR), cutting 2019’s expectation significantly. While previous predictions had put the city’s 2019 GGR at 11%, it now sits at only 4%, GGRAsia reported.
Deutsche Bank indicated that the update stems from concerns over the VIP gambling segment. It added that Macau could be at the beginning of a downward earnings cycle and has recommended a “sell” on two of the area’s casino operators, SJM Holdings and Galaxy Entertainment Group.
According to analysts, the “current downcycle is similar to the late-2011 to mid-2012 slowdown when GGR growth sharply decelerated to 6 percent year-on-year from 20 percent year-on-year.”
Five of the six Macau operators who are listed on the Hong Kong Stock Exchange immediately saw a substantial increase in their stocks sales. Stock prices dropped 7.42% for MGM China and Wynn Macau saw its price slip by 3.28%. SJM Holdings’ stock price fell 6.44%, while Galaxy’s shrunk by 5.69%.
The Macau index of casino shares has also fallen recently. Since the end of May, it has dropped by 37%, and, in the current month, has dropped every day except for one, in spite of improved performance over August.
In August, Macau’s GGR had climbed 17.1% year-on-year to reach almost $3.29 billion. It was the highest amount recorded so far in 2018 and the second highest in the past 36 months.
According to a note on Monday by Japanese brokerage Nomura, Macau gaming stock values have declined by between 20-30% since June. It said that the majority of the decrease had happened “over the last five days.”
Nomura analysts Daniel Adam, Harry Curis and Brian Dobson said, “We believe the decline to be somewhat justified given fears over an extended and more damaging trade conflict, but also believe it’s overdone. Several operators we spoke with over the past few days said that their sequential VIP volumes have been increasing over the last six weeks. VIP growth has decelerated, but to a more measured rate, which has a silver lining in that excessive growth attracts the attention of Beijing.”
The fear of a trade war between the U.S. and China could be causing a decrease in investor confidence, leading to the recession. This is in spite of the fact that Macau itself is a member of the World Trade Organization.