Macau Casino Stocks are a Gamble Due to Government Meddling

Steve Kanaval |

Casino.jpgChinese Uncertainty Was Always a Risk in Macau

When Las Vegas-based casinos chased Chinese gambling profits to Macau, they all took risks investing money by building out their casinos, as well as investing in employee training and all the trappings that went along with the promise of these profits from the East. On the balance sheet for many US-based gambling stocks, Macau evolved into the “Chinese Vegas,” and Wall Street inserted a new multiple into the paradigm shift of how to calculate the value of all casino stocks, and the sector in general. However, somewhere in the small print, the caveat for Macau was that the Chinese government could stack the deck any way they chose…and that’s exactly what they did.

Shares in Wynn Resorts Limited ($WYNN) started to build in the potential for profits in Macau in 2006, when shares were around $60, and eventually WYNN fully realized what Wall Street was projecting for gambling stocks when shares reached $200 per share in 2014. It was necessary for any gambling stock to extract profit from Macau or they would be viewed as “behind the times,” even during the mortgage disaster in 2008 that tested all global stocks. While our economy was on the verge of collapse, casino stocks all pointed to what Macau could bring to the table if they survived the public exiting the stock market.

Reading the Small Print on Macau

If you read the analyst reports dating back to 2007 and 2008, you will find that the small print referring to government intervention came true, and if you listen to the current earnings report from WYNN, you will see the dangers that lurked in investing in Macau also coming true. Events affecting VIP gambling in Macau have been hit by President Xi Jinping’s campaign on graft that snared thousands of officials, prompting many wealthy Chinese to cut back on conspicuous consumption and stay away from the world’s largest gambling hub. As revenues slumped, the city’s leaders have given little detail about the allocation of workers and gaming tables, casting doubt over a slew of new offerings planned by the six major casino operators, including a new Wynn Macau property.

“There’s no question that uncertainty is the plaguing word of the day in Macau,” the founder of Wynn Resorts Ltd. said Tuesday during a teleconference for its earnings. “Hopefully, our government in Macau will calm that down and put some certainty back into the picture.”

Wall Street lives on expectation and builds up the multiple of a sector when a new revenue stream emerges, but the opposite has to be true to keep balance in the world of investing, so don’t be fooled when analysts tout a recovery and project it will be an easy task. The Chinese government does not want to “American-ize” the Island of Macau, and intends to demonstrate control over citizen’s ability to gamble and be corrupted and poisoned by the devil from the West.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
WYNN Wynn Resorts Limited 98.20 -0.44 -0.45 942,286

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