China Credit Slowdown Signals Drop in Macau VIP Spending
Macau’s high-stakes gambling volume should expand through year’s end, then slow in 2014 as China’s decelerating loan activity filters into the economy, according to Wells Fargo & Co.
The CHART OF THE DAY compares growth of Macau’s junket volumes and China’s so-called social financing, a measure of credit activity, on a 12-month trailing basis. Gambling by “high rollers” typically shifts in conjunction with lending on the mainland, though with a lag time of about six to 12 months, Wells Fargo says. That means gaming volume should rise through part or all of the fourth quarter, as credit growth peaked in April. The lower panel tracks shares performances of the four Macau casino operators that rely most on VIP tours, normalized from the start of 2012, according to Bloomberg Industries.
“The massive credit growth in the first half is yet to flow through Macau gaming given the lagged effect,” Cameron McKnight, a New York-based analyst at Wells Fargo, said in an e-mail. “The more recent slowdown could have a knock-on effect some time in 2014.”
The half- to full-year delay between lending and gambling activity “reflects the time it takes for additional liquidity to flow through the economy and filter through to more discretionary activities like gaming, holidays and jewelry purchases,” McKnight said.
High rollers from the mainland usually go to Macau, the only place in China where casino gambling is legal, on trips that are organized by junket operators, middlemen who arrange both travel and credit lines for betting. Revenue from VIP baccarat rose 10.5 percent to 115.8 billion patacas ($14.5 billion) in the six months through June, according to data from Macau’s Gaming Inspection & Coordination Bureau.
Wynn Macau Ltd., MGM China Holdings Ltd. (2282), Galaxy Entertainment Group Ltd. (27) and Melco Crown Entertainment Ltd. (MPEL) derived about half their total table-game profits from the VIP segment in the second quarter, according to Bloomberg Industries. Macau posted casino revenue of $3.69 billion for July, outstripping Las Vegas’s by more than six times, Bloomberg Industries data show.