Analysis | Gaming dollars ending up on mainland stock markets

It would be unusual to compare the New York Stock Exchange to the Las Vegas Strip. But China is different,” the Financial Times stated yesterday on its popular fastFT comments online.
Casino revenues in Macau – the only place in the country where casinos are legal – fell 39.4 percent in March, as we published yesterday based on data from the Gaming Bureau (DICJ).
At the same time, the Chinese domestic stock market – which spent several years in the doldrums after a bubble burst in 2007 – “has suddenly gone on a tear, closing at a fresh seven-year high today [yesterday],” the fastFT comments observed.
So the question is: What does betting have to do with equities?
In China, “quite a bit,” argues the Financial Times. Because of capital controls designed to stop money leaving the country and very poor rates of interest on offer from government-owned banks, the stock market is one of the few places Chinese investors can make money. It is also one place they can legally gamble, as casinos are banned on the mainland, unless they go to Macau. Some retail investors may of course pore over companies’ annual reports or take a macro-economic view. But the Shanghai market, as described by analysts at Capital Economics, is “increasingly divorced from economic fundamentals” and is often driven by momentum.
Macau’s gaming halls, which in terms of cash takings overtook the Las Vegas strip long ago, “have been dealt a bad hand by an anti-corruption drive spearheaded by Chinese president Xi Jinping since he took power in 2012.” Anti-corruption officials have been scrutinizing Macau, for potential money laundering activities by gamblers, making even “the most honest of rich folk nervous about visiting.”
Macau used to attract corruption but that changed dramatically. According to research from the Polytechnic Institute of Macau, around half the VIP gamblers in 2010 were either government officials or executives of state-owned enterprises. They stopped coming.
Expectations that the Chinese renminbi could rise in value against the dollar, due to the nation’s trade surplus and increasing foreign direct investment, may be another reason for “China’s [top] 1 percent to keep money in the domestic stock market instead of taking the risk of illicitly subverting capital controls” to bet in Macau casinos, FT argues. PC