Macau Casino Stocks Crash Despite Record Profits
by Jack Prophet | Oct 20 2011
What the heck does one make of the publicly traded stocks of the big Macau
casinos these days? The term rollercoaster wouldn't even begin to accurately paint a picture, and their values appear to be as random as a
roulette wheel. Two weeks ago the stocks partially rebounded from the tumble they took in September with the rest of the world when a European financial collapse seemed imminent. Last week however all the gains were lost as the stocks got slaughtered on the Hong Kong Stock Exchange with some companies losing up to a quarter of their worth.
No need to gamble on the stock market when you can enjoy Bodog's state of the art online casino which has been bailout free for over 15 years! Enjoy the best in online slots and table games like Caribbean Stud and Blackjack from the comfort of home.What makes this all very surreal is that the Macau casinos are still going gangbusters with gaming revenues up 39% year over year for September. So what is going on in the land of
Baccarat? The concern is the same ultimately as it is for the rest of the world at the moment- credit. The vast majority of Macau's growth has come from mainland Chinese VIP gamblers who are flexing their new found wealth and love to gamble. However, they are doing so on credit and many of their businesses also run on credit. Therefore, as world sources of credit continue to dry up financial analysts fear so will the flow of wealthy Chinese gamblers to Macau.
However, there are a number of private credit providers that service mainland VIP gamblers and are usually associated with the casino junket companies that operate solely to bring gamblers to the former Portuguese colony. As with many financial services in China today there exists a “gray” banking system along with the regulated and approved mainstream one. There appear to be a number of reasons for this with the main one being that unreported income can be hidden or moved around and thus avoid taxation or explanation. Additionally, credit can be much more easily obtained than from the traditional banking system. The junket operators are often thought to be using the “gray” financial system to move money and collect debts.
This of course raises the question of who is providing credit and money services for mainland gamblers, and the concern is that organized crime has become involved. The infamous Triad gangs of China have long run their own banking systems and are expert at getting around regulations when moving money. The Macau casinos are required by law to screen all casino junket operators to ensure that none of them are associated with any criminal syndicate, but by all accounts the screening process is by no means foolproof. However, the Wynn group has built a reputation of being the most rigorous of the casino operators in vetting junket operators which has worked to their advantage. This may explain why they were successful in gaining a license to build a second Macau casino despite aggressive lobbying from their competitors.
Despite the seemingly endless supply of private credit to mainland gamblers, Macau casino stocks plunged significantly last week. The biggest losers were
Stanley Ho's SJM holdings which lost an incredible 25% on the Hong Kong Stock Exchange, and MGM Resorts International which lost 20% of its value.
Wynn International lost over 14%, with rival
Las Vegas Sands Corporation losing around 11%. However this is where it becomes confusing. Despite the losses on the stock market all the above casinos are absolutely rolling in cash and vigourously trying to expand further in Asia. The MGM group is building a resort complex on
Hainan, Wynn International is building a second Macau property, and Las Vegas Sands is rumoured to be considering a stock split.
Given the above now might be the perfect time to pick up Macau gaming stocks as they could be considered as undervalued. Until the informal banking and credit apparatus in China dries up, the stunning growth posted by the Macau casinos over the past couple of years could very well continue regardless of what happens on the stock market.
Play now at Bodog's online casino. All the casino action you could want and more 24/7!
