| HONG KONG, June 4
HONG KONG, June 4 Global investors are paring
their bets on stocks geared to Macau, the world's casino
capital, after a raft of regulatory curbs sparked concerns about
slowing revenue growth in the next few months.
Macau, a special administrative region like neighbouring
Hong Kong, is the only place in China where citizens can legally
gamble in casinos, and analysts say its growth prospects in the
longer term remain strong, due to its proximity to the mainland.
Eight new resorts are also set to open within three years.
But while annual revenues reached a record $45 billion in
2013, elevating the tiny territory high above rivals, investor
sentiment has soured after the Macau authorities said they would
restrict next month the use of China's state-backed UnionPay
card in a bid to tackle money laundering.
A smoking ban on casino gaming floors, to be implemented by
October, and restrictions on transit visas may also reduce the
number of visitors, analysts say.
"The anti-money laundering crackdown is affecting people
going to Macau and can be turning point for the sector," said
Benjamin Chang, chief executive of hedge fund LBN Advisors that
invests $800 million in China.
"From a growth and valuation perspective, they are probably
beyond the high growth phase. Macau seems to be a less sexy
sector right now," said Chang, whose fund has mostly wound up
its investments in Macau's gaming sector.
Several fund managers and other institutional investors
contacted by Reuters did not disclose their investments in
Macau, but money managers such as Vontobel Asset Management and
Capital Research Global cut exposure to Sands China in the first
quarter of this year, according to data from Thomson Reuters.
U.S. fund manager Waddell & Reed Financial Inc also
shifted its remaining stake in Macau-based Sands China
into parent Las Vegas Sands last week. Both are
controlled by U.S. billionaire Sheldon Adelson..
Hong Kong is the biggest market for gaming stocks. There are
20 listed companies with a market value of $179 billion, ahead
of the United States where 24 companies with a total market
value of $116.9 billion are listed, according to data from
Hong Kong-listed casino and gaming stocks have on average
fallen 12 percent in the year to May 29, more than double the
5.7 percent average drop in global peers. The decline has pulled
back the forward 12-month price-to-earnings ratio of Hong
Kong-listed shares to 16.4 times versus 18.2 times for global
The drop is a far cry from last year, when Hong Kong casino
and gaming stocks added more than $100 billion to investors'
wealth after stocks on average more than doubled in value.
"The market is lowering its exposure," said Jimmy Weng, a
portfolio manager at hedge fund Genesis Capital Investment which
invests in China. "The uncertainty is leading many funds to go
underweight. We have no exposure to Macau," he added.
A Portuguese colony until 1999, Macau earns the equivalent
of Las Vegas' annual haul in less than two months, but the pace
of gaming revenue growth started to slow last year, largely due
to a shrinkage in the lucrative VIP segment, made up of
high-rollers from the mainland. In May, casino revenues rose 9.3
percent year-on-year, lagging analysts estimates of 13-15
The VIP sector, which used to account for 70-80 percent of
overall revenues, has been eclipsed by the so-called mass market
sector of middle class Chinese who now account for more than a
third of total revenues.
Hedge funds "see the whole Macau gaming sector peaking",
said Theodore Shou, chief investment officer of Skybound
Capital, citing interactions with several fund managers.
"A lot of them have already trimmed their position
significantly," he said. "Some managers even started shorting
the sector from early this year."
Galaxy Entertainment Group Ltd, the second-biggest
Macau casino operator, is a stock hit by short sellers. About 6
percent of its shares that can be borrowed are out on loan,
according to data from Markit. While that is still small, the
borrowing has gone up from about 2 percent in late April.
The mass market visitors that now frequent Macau rely
heavily on the use of UnionPay cards to get gambling money, as
Chinese nationals are only allowed to take out 20,000 yuan
($3,200) in cash per day.
Visitors get around this limit by pretending to buy
expensive items on their cards. However, new guidelines imposed
by the Macau authorities, which takes effect on July 1, urge
banks to restrict the use of UnionPay.
Investors concerns about the amount of money coming into
Macau were also heightened after the arrest of an investor in a
major junket group in April. Another junket operator also
disappeared with around 10 billion yuan.
Junkets are companies or individuals that offer millions of
yuan in credit to gamblers, helping them bridge currency
restrictions and handle any debt repayments.
"There are a lot of headwinds against the industry right
now, all coming together," said Weng of Genesis Capital.
($1 = 6.2399 Chinese Yuan)
(Reporting by Farah Master and Nishant Kumar; Editing by Denny
Thomas and Miral Fahmy)