Macau Casino Stocks Slump on China Crackdown Fears – Barron's

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Macau’s casino stocks were crushed in Hong Kong trading Monday morning amid increasing government scrutiny of money transfers between China and the gambling enclave.

Casino operators Wynn Macau (1128.HK) and Melco International Development (200.HK) both slumped as much as 6%. MGM China (2282.HK) shed as much as 3.5% and Sands China (1928.HK) 2.1% amid broad weakness across the sector.

The sell-off came after Sun City, Macau’s biggest junket operator, warned its staff on Friday night about the risk of moving clients’ funds across the Macau-China border. The Chinese government has been gradually turning the screws on those who move money between the two jurisdictions, such as by limiting withdrawals at ATMs, tightening up on I.D. checks and freezing certain bank accounts.

Investors are concerned that the Sun City warning could preclude another crackdown on the industry. “The warning in itself is not a harbinger of doom,” says Bernstein analyst Vitaly Umansky, but highlights “the continued risk [of] China’s continued focus on capital outflows” on Macau gaming revenues. “The exact purpose of the warning is not clear at this stage,” adds Umansky, who thinks one side-effect is that VIP punters could become more nervous about transferring funds from China into junket accounts in Macau. That could create a liquidity headache for Macau’s casinos.

Macau, a former Portuguese colony handed back to China in 1999, has seen an upturn in its casino’s fortunes in recent months. Gaming revenues have broadly rebounded after a long losing streak caused by Chinese president Xi Jinping’s crackdown on corruption in recent years.

Casino operators have increasingly pivoted towards mass-market gamblers too, rather than specifically high-rollers, by building family-friendly resorts and other attractions. It’s not been plain-sailing, though. New challenges to the industry include a crackdown on proxy betting via smartphone apps and a smoking ban in Macau’s lucrative VIP gaming rooms. Several employees of Australia’s Crown Resorts (CWN.AU) in China were jailed last month after they were found guilty of promoting gambling in China’s mainland, where the activity is outlawed.

Rich valuations are not helping the case for Macau’s casino stocks, either, with several names trading near historical highs on a forward price-to-earnings basis.