Macau Casinos Plunging Amid Gov’t Consultation

The Chinese government has stockholders in anxiety following the commencement of a 45-day consultation on casino regulations and renewal of licenses. 

Macau has long been the gambling capital of Asia. It hosts the world’s largest casinos, which have become hotspots for the rich in the region. For years, Macau casinos were the perfect place for Chinese millionaires to spend their money. Now it looks like all of that could change with the Chinese government looking into the industry regulations. Crackdown fears are sending investors away, but it doesn’t end there. Shares of casino operators in the region have dropped by a third of their value, with over $14 billion lost this week[1].

Macau casinos have already experienced a great deal of loss due to the coronavirus pandemic, which hindered the influx of customers from nearby regions. The tough luck doesn’t look to end as Chinese officials plan to oversee the renewal of expiring licenses. Historically, Chinese government crackdowns on big industries have had enormous negative impacts on Hong Kong markets. Notably, the property, technology, and education sectors have suffered losses up to hundreds of millions in asset value due to government repression. 

Having seen the effects of previous Hong Kong (HK) crackdowns, investors are using the exit door. The biggest losses were seen in the stocks of Wynn Macau (1128.HK), who lost 34% and Sands China (1928.HK) with 28% loss in their stock value. Other casino operators such as Peers MGM China (2282.HK), Galaxy Entertainment (0027.HK), SJM (0880.HK), and Melco Entertainment (0200.HK) also recorded heavy losses[2].

Investment groups such as J.P, Morgan and CFRA have downgraded the Macau casino stocks from a “buy” to a “strong sell.” This action is likely to lead to more losses for the casino owners.

Why did this happen?

The plunge came straight after Macau’s secretary for economy and finance, Lei Wai Nong, gave notice of a 45-day period for consultation on the gambling industry. She pointed to deficiencies in the industry’s supervision.

At a news brief on Tuesday, Lei enumerated nine areas for the consultation[3]. The areas include: 

• Numbers of licenses to be granted 
• Duration of the gambling licenses 
• Improved official requirements for casino operators 
• Protection measures for employees
• Strengthened verification licensees and junket operators
• Introduction of government representatives to monitor day-to-day operations
• Promotion of non-gambling projects
• Social responsibility
• Clarification of criminal liability and administrative punishment system 

When we combine these areas of consultation with how Chinese officials suppressed Hong Kong’s businesses, we understand the exodus of the stockholders from the region. Investors are usually not comfortable with strict regulations and massive control by the central government. 

In recent years, we have seen casinos in Macau working hard to please the government. They have tightened all surrounding areas, clamped down on illegal capital flows from mainland China, and combated underground lending and illicit cash transfers. Likewise, Macau has more than doubled the number of inspectors since June this year. Besides, several departments underwent restructuring to ramp up supervision. 

We can only wait to see whether designated officials will consider these measures as enough. The end of this 45-day consultation period will reveal how many casino operators were able to renew their licenses. However, with the past year in mind, casino lovers can only hope for the best regarding the survival of the largest casino region in the world. Macau casinos have already lost over half of their profits compared to 2019, although they have started picking up again.