Market Uncertainty Driving Away Some of Macau's High Rollers

(Bloomberg) -- The financial market turmoil triggered by escalating U.S.-China trade tensions and a weaker Chinese currency is threatening a two-year recovery in the world’s biggest casino hub.

Some high-end players have stayed away from Macau in the past two weeks, citing the fluctuations in the stock market and the looming trade war, said Andrew Lo, executive director of Suncity Group Holdings Ltd., the listed vehicle of the enclave’s biggest junket operator.

“The market conditions have more uncertainties, including the potential trade war escalation,” said Lo. “High rollers are more cautious, betting less or reducing trips to Macau.”

Macau, the former Portuguese colony that gets the bulk of its visitors from mainland China, has seen gaming revenue dragged down in the past by steep drops in equities and volatility in the yuan. The latest upheaval in the markets risks denting Macau’s casino business if gamblers’ worries intensify.

Market Uncertainty Driving Away Some of Macau's High Rollers

The caution is already surfacing in Macau’s gaming data, with revenue showing two straight months of slowing growth. It’s expected to maintain low double-digit gains in July, according to a survey of analysts by Bloomberg News.

The sentiment contributed to a 21 percent tumble in the Bloomberg Intelligence index for Macau casinos from a four-year high at the end of May. Shares of MGM China Holdings Ltd., Galaxy Entertainment Group Ltd. and Wynn Macau Ltd. have fallen more than 22 percent from their peaks this year. The index advanced 0.1 percent in Hong Kong on Wednesday.

High rollers are concerned about the “message from the weakening yuan,” said Fielding Chen, Bloomberg’s China economist based in Hong Kong. “The trade-war risk, stock market turmoil, and impact on the property sector from deleveraging -- these factors hurt the pockets of the rich.”

The yuan’s depreciation may also deter casual gamblers, who are more price sensitive, said Bloomberg Intelligence analyst Margaret Huang. Hotels, restaurants and entertainment costs in Macau are priced in Hong Kong dollars or Macau patacas, which will become more expensive when the yuan depreciates.

Still, Macau’s gaming revenue, historically, has higher correlation with China’s producer price index and residential price index, said Robin Yuen, an analyst at UOB Kay Hian. “Interestingly, those indexes have yet to dip.”

©2018 Bloomberg L.P.