Whilst global investors have become edgy about the extended scope of mandates implemented by the central government on several industries, Morgan Stanley Asia Ltd assuages concerns in a memo, confirming the impact of these restrictions on the gaming industry would be limited.
According to a report published yesterday by GGRAsia, the international investment banking group stated in a release that these tightened controls are “less relevant” to the casino industry.
The stringent mandates cover several industries, including education, property and technology.
For instance, the State Council launched a string of reformative regulations on July 24, which will see a ban on off-campus private tutoring firms making a profit, raising capital or going public. The new rules, according to the official document, are intended to help students further decrease their “burdens” related to homework and off-campus training.
The document suggested that companies which offer tutoring to support the curriculum in primary and middle schools should register as “nonprofit institutions.” These rules may wipe out the rapidly growing industry, which had been buoyed mainly by funding from global investors.
Another investment banking group, JP Morgan, opined earlier in a release that the new regime for China’s education sector “makes these stocks virtually un-investable.”
Separately, China imposed a set of mandates on tech behemoths, such as new guidelines on the treatment of food-delivery drivers and requirements to fix particular anti-competitive practices, among others, giving rise to a slump in tech stocks this week.
Given these events, investors in gaming stocks have been worried about “regulatory tail risk,” Morgan Stanley said.
Nonetheless, compared to the above regulatory measures, those imposed on gaming businesses are not new, the brokerage reassured investors.
As early as December last year, the Standing Committee of the National People’s Congress (NPC), China’s top legislature, sanctioned an amendment to the national criminal law criminalizing anyone who “organizes [for] citizens of mainland China to participate in gambling outside the country (or border), which involves a hefty sum or cases with serious consequences.”
The amended law came into force on March 1 this year. Gaming experts regarded this as a “stricter” regulation, which would deal a huge blow to the city’s VIP and premium mass market.
Morgan Stanley projected that base and middle mass or slot segments will fare better than VIP or premium mass segments, as China is stepping up efforts to develop “common prosperity,” a development plan intended to build a modern socialist country.
The goal of common prosperity should be given greater prominence as China has entered a new stage of development, President Xi Jinping stated in an earlier study session of the Political Bureau of the Chinese Communist Party Central Committee held in January this year.
Despite all these environmental factors, Morgan Stanley remains positive about Macau’s gaming industry, eyeing border reopening and the extension of casino concessions in the second half of this year.
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