Bets off for Macau as VIPs feel trade war crunch

Even with the old adage never bet against the house, the odds are beginning to look a bit stacked against Macau’s gaming stocks.

It’s been a roller-coaster year so far for the industry group. The UBS Macau Gaming Basket, which tracks Hong Kong-listed casino operators including Galaxy Entertainment Group Ltd. and Sands China Ltd., is hanging on to a 15% gain after massive price swings in recent months including a 19% slump in May. A slide in gaming revenue has hit the region despite record foot traffic.

China’s high rollers, a key source of revenue for Macau, are feeling the pinch as their businesses suffer from the ongoing U.S.-China trade war, according to feedback that Las Vegas Sands Corp. has received from its wealthiest gamblers. The firm’s second-quarter results for Macau this week fell short of analyst estimates, sending shares lower.

“I won’t expect much recovery this year but I might see more meaningful recovery in the first half of next year,” said Angela Han Lee, equity research analyst with China Renaissance Securities HK in an interview on Bloomberg TV. “We are seeing more concerns than upside here.”

While the Hong Kong-Zhuhai-Macau bridge is helping to drive foot traffic to Macau, which saw monthly visitor arrivals hit a record in December after it opened, “all this traffic is kind of low-quality traffic” not spending enough to make up the difference, she said.

Visitor arrivals to Macau were about 21% higher in the first six months of 2019 than in the equivalent period a year earlier, according to official data provided by the Macau government. At the same time, gross gaming revenue and per capita spending were notably down during the first half of the year.

“The slowdown in the Chinese economy was the major reason why high rollers got hammered. The mass market is kind of supporting but it cannot support that much,” said Lee.

Las Vegas Sands president Robert Goldstein also expressed concerns with the global VIP market on a company earnings call last week. He said that although Macau has not felt much of an impact to date, Sands is hearing worries from high-end entrepreneurs or those who work for companies impacted by the tensions between the U.S. and China. He cited a Chinese customer in Las Vegas who said the trade war is “really impactful.” DB/Bloomberg