China’s three yuan depreciation moves over three consecutive days last week have not only sent shockwaves rippling through global markets, but have also triggered fluctuations among local casinos’ shares on Hong Kong’s stock market to varying extents.
The statistics provided by the Stock Exchange of Hong Kong indicate that the region’s listed gaming companies have recorded their first conspicuous decline in share prices since the currency devaluation announcement last Tuesday, followed by another announcement the following day. However, shares picked up on Thursday, defying the further 1.1 percent drop of middle rate between the renminbi and the dollar. Their trading volume has also demonstrated a decline since Tuesday.
It was reported that casino operators such as Wynn Resorts and Las Vegas Sands were sold off last week amid concerns that less cash would flow in from the VIP gaming rooms. Wynn shares closed at USD94.62 on Thursday, down from their high above $246 last year, while Sands shares closed at $53.12, down from their peak of above $87 last year.
The sale was justifiable, as local junkets were said to not have reaped their expected repayment in yuan from their debtors when the loans they made to mainland high rollers were in patacas, which are pegged to the greenback (via the Hong Kong dollar).
Despite the share tumbles, some investors regarded such an occasion a “buying opportunity,” saying the gaming situation in the region was “an undervalued asset and the stocks might have been oversold,” according to Reuters coverage. The managers of Longleaf Partners Small-Cap Fund, advised by Southeastern Asset Management, even wrote that “weakness in the Macau (China) gaming market provided the opportunity to purchase Wynn Resorts at a substantial discount to our appraisal” in their latest commentary.
Nonetheless, other investors have already sold their holdings in the gaming operators, on the grounds of the central government’s threatening anti-graft campaign.
Although more resorts in the Cotai Strip are slated to be unveiled soon, Shawn Narancich, executive vice-president of equity research and portfolio management at Ferguson Wellman Captial management, expressed his concerns that the supply might outstrip demand, especially amid different headwinds negatively impacting the region’s gaming revenue at the moment. The firm sold roughly 360,000 shares of Las Vegas Sands last year after their value slid.
“Without a firm or improving business environment for gaming companies, it is very difficult for casino stocks to perform well,” explained managers from Wintergreen Fund who sold their Wynn Macau shares in the first quarter of the year, in a written commentary.
Last week’s phenomenon proved that the weakened yuan’s impact on stocks was limited and temporary, as shares on the United States’ stock market finished 0.7 percent or even higher by Friday’s close, unintimidated by China’s sucker-punch policy.
Richard Weeks, a partner at Hightower Advisors, was cited as recognizing the Chinese devaluation as a concern, yet saying that last week “nothing fundamental and long-term changed for the U.S. stocks” as the market internals are an area of greater concern.
Staff reporter/Agencies
Bloomberry Resorts: Devaluation may hurt Philippines’ fledgling casino sector
The recent devaluation of the Chinese yuan is “casting a shadow over the Philippine gaming industry, which aims to attract more gamblers from China and other parts of the [Asia-Pacific] region,” the Nikkei Report proposed in a dispatch over the weekend.
The weaker yuan will “probably reduce the spending power of the Chinese and Koreans, who are the main targets of these Philippine gaming companies,” Lexter Azurin, research head at Unicapital Securities, told the Japanese agency.
The analyst was referring to the three biggest players in the fledgling sector: Bloomberry Resorts, which runs the Solaire Resort and Casino; Melco Crown Philippines, owner of City of Dreams Manila; and Travellers International Hotel Group, the company responsible for Resorts World Manila.
However, another analyst, who was quoted by Nikkei Report, played down the yuan’s impact, noting that the bulk of gaming revenues still originates from domestic gamblers – not foreign tourists. “There could be some effect, but it should not be significant or alarming,” said Rommel Rodrigo at Maybank ATR Kim Eng Securities.
Amid falling exports, China started to devalue the yuan earlier in the week, battering regional currencies including the Philippine peso and South Korean won. For the Philippines, South Korea is the country from which the majority of its tourists hail.
Weaker spending by tourists could hurt gaming companies that already posted lackluster first-half results, due to stiff competition and mounting expenses.
According to Nikkei, Melco Crown reported a loss of 4.91 billion pesos (USD106 million) for the six months ending in June, while Bloomberry recorded a loss of 1.31 billion pesos. Travellers saw earnings slide 18%, to 2.36 billion pesos, partly due to forex losses stemming from the weak peso.
Two additional large casinos, worth at least $1 billion each, are set to open in the next three years, as the Southeast Asian nation strives to become a major global gaming hub.
“The Philippine gaming sector is coming from zero,” Azurin said. “It has just started, compared with Macau and Singapore. Looking at the horizon, it’s still a promising industry.”
tourism and inflation affected by yuan devaluation
The Monetary Authority of Macau (AMCM) has acknowledged that the decision by China’s central bank to to devalue its currency may affect Macau’s tourism sector and inflation rate.
“The weakening of the RMB might reduce the MSAR’s attractiveness as a tourism destination for mainland visitors,” the AMCM stated last week, adding that tourism is a key sector for the local economy, and mainland tourists account for over half of Macau’s visitor arrivals.
AMCM estimates that tourism and retail businesses will be negatively impacted in the short-term following the yuan devaluation.
Furthermore, AMCM believes that imported prices will be further lowered, leading to “moderate inflationary pressure.”
Short-term returns will also be adversely affected while appropriate risk-control measures have been taken, it revealed.
The Monetary Authority remarked that in the past few years, the return provided by the RMB was generally attractive, leading authorities to allocate the Fiscal Reserve’s assets into RMB assets. It is expected that the RMB’s weakening against the USD will lower the annual rate of return for the first eight months of 2015.
The Monetary Authority said this year’s performance will depend on the global financial market, although they expect positive returns for 2016. CP
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