AP/Kin Cheung
Attendants conduct play with the visitors over a Black Jack gaming table during the Global Gaming Expo Asia in Macau.
- Revenue from high rollers in Macau has been declining, and it's a sign the sector may be impacted by China's slowing economy.
- Overall tourist numbers have held up, but declining revenues signal a drop in gross gambling revenues.
- Several gaming analysts recommend reduced exposure to the sector as China macro risk heightens.
Declining activity among high rollers and weaker than expected gaming numbers in Macau are further evidence that the slowdown in China is having an impact on the gambling capital of the world.
In a note dated March 7, VIP volume was estimated by Credit Suisse to be down nearly 10% year-over-year in the fourth quarter while volumes for non-VIP gamers rose just 1%. Tourist numbers to Macau have held up, but it appears that people are gambling less.
The bank says now is the time to reduce exposure to the Macau gaming sector. Its coverage group includes Sands China, Galaxy, MGM China and Wynn Macau.
Other analysts have also cited risks to the space. "Despite November revenue better than expected...our lower estimates are driven by weaker VIP and premium demand amid heightened risk to macroeconomic outlook in China," UBS analyst Robin Farley said, according to Barron's.
Questions continue to overhang the sector after Wynn in November forecast a weak outlook for the fourth quarter, prompting a 12% plunge in the company's share price. Further, The Financial Times reported January represented the first monthly decline in gaming revenue for Macau in over two years, slipping 5% year-over-year.
The disappointing gaming-revenues data comes alongside a host of indicators showing signs that the Chinese economy is losing steam. On Monday, China cut its official growth target for 2019 to a range between 6% and 6.5%, its lowest since 1990. Sentiment on trade negotiations between the US and China continue to move markets, but a deal has remained elusive.
At the same time, the Chinese government is also seeking to reduce debt levels in the economy, indicating credit growth may slow or even decline, providing less funds for discretionary purchases. Chinese household debt has soared in recent years, with credit cards fueling much of the growth.
Aggregate Chinese credit-card balances have surpassed those of the US and are now approaching $1 trillion.
Autonomous Research