Macau casino stocks reel as China flexes regulatory powers
Macau casino stocks imploded Wednesday on news that gaming companies on the island are now squarely in China's regulatory crosshairs.
Why it matters: Macau historically operated at arm's length from Beijing, developing a reputation as a Wild West not only for casino gambling but also for money laundering and loan-sharking.
- Now, the Chinese Communist Party apparently wants to rein in Macau's excesses even more than it already has.
What happened: Gaming licenses in Macau, which will expire in June 2022, are undergoing an expected renewal process. What was unexpected was Macau officials announcing a review of how the gaming industry is regulated. The process includes a 45-day consultation period starting Sept. 15.
- “Among the topics being covered: how many licenses — known locally as ‘concessions’ — will be allowed, how long their terms will be, and the level of supervision by the government,” Bloomberg reports.
- Shares of Sands China and Wynn Macau tumbled by a third amid the prospect for tighter regulation. Las Vegas Sands, MGM Resorts International and Wynn Resorts International also traded lower.
The big picture: China is unlikely to do to Macau gamblers what it did to teen gamers. There are still going to be casinos on the island — and they are still going to be owned largely by foreign companies.
- Investors are worried, however, that Sino-American geopolitical tensions will result in U.S. operators being penalized, either by being forced to lower their profit margins or by being forced to partner with Chinese companies.
What they’re saying: "Fear of the unknown is the dominant narrative,” Deutsche Bank analyst Carlo Santarelli wrote on Wednesday. "Investors have taken note of other sectors in China that have been hit hard by Government intervention and increasing control.”
The bottom line: Investors are acutely aware that the Chinese government sees capitalism and profit as a means to an end, rather than a goal in itself.
- The CCP has already made it a lot harder for Chinese people to gamble in Macau. This week's announcements suggest that process is far from over.