Macau Gaming Stocks Break Through Key Level as Outlook Brightens

Macau gaming stocks are signaling a change in fortunes after a two-year slump.

A gauge measuring the performance of casino companies with operations in Macau versus Hong Kong’s benchmark Hang Seng Index broke above its 200-day moving average for the first time in 3 1/2 years. When that last happened, gaming stocks embarked on a 162 percent rally.

Shares of Sands China Ltd., Wynn Macau Ltd., Galaxy Entertainment Group Ltd., SJM Holdings Ltd. and MGM China Holdings Ltd. have rebounded an average 22 percent since Jan. 21 as gaming revenue stabilized and earnings turned out better than expected. Casino shares were battered in the past two years, falling as much as 75 percent, as China’s slowing economy and anti-corruption policies weighed on earnings. A decline in the yuan also eroded mainland visitors’ purchasing power, adding to concern Chinese tourist spending will dry up.

“Overall gaming numbers are bottoming," said Rahul Chadha, co-chief investment officer at Mirae Asset Global Investments, which oversees about $75 billion. “If the yuan and Chinese economy stabilize there’s money making opportunity in Macau. Macau went through a lot of pain over the last 12 to 18 months."

When the ratio of Macau gaming stocks and the Hang Seng Index last broke above the 200-day moving average in August 2012, it climbed steadily to reach a peak in January 2014 as gaming shares more than doubled. Macau casino stocks are down 2.6 percent this year on average, versus a 13 percent drop for the Hang Seng Index. The casino-Hang Seng Index ratio traded above its 200-day moving average on Friday and extended gains Monday. Gaming shares slid 1.2 percent on average on Tuesday.

While gaming revenue fell 21 percent in January from a year earlier, it was better than analysts expected. The data are “definitely positive," Nomura Holdings Inc. analyst Richard Huang said in Hong Kong this month, noting it’s too early to draw long-term conclusions. Wynn Resorts Ltd. founder Steve Wynn said in a post-earnings conference call that January was the Macau business’s “best month in a long time.”

Wynn Macau shares jumped 10 percent on Monday, the largest gain since July, as casino stocks rallied along with the broader Hong Kong market. The stock slipped 0.5 percent Tuesday.

“The growth rate isn’t getting any worse,” Ben Surtees, a London-based money manager for Jupiter Asset Management Ltd., said by phone. “Macau’s gaming revenue is stabilizing and during the year they’ll run into easier year-on-year comparatives.” 

Year-on-year declines in Macau gaming revenue may narrow further this month to 5 percent, Credit Suisse Group AG said in a note this month. Data from the Macau Government Tourist Office show Chinese visitors to the city during the Lunar New Year holiday increased from a year earlier, though spending was down.

“The business model is not broken," said Chadha. “Reversal of the long-term trend is contingent on whether the Chinese economy stabilizes or not."

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