Jittery casino investors weigh risks of China cash crackdown

Signs of a renewed crackdown by Macau to stem currency outflows are fueling investor jitters over casino stocks in the world’s biggest gambling hub.

An index of local casino operators slumped yesterday after the Macau Monetary Authority said late Wednesday that money exchange and remittance services by shops or individuals other than banks, the postal savings office, money changers and remittance companies are illegal. It also called on banks to monitor merchants using credit card machines from conducting illegal activities.

The statement follows investor concerns earlier in the week of a clampdown after banks withdrew cash-back machines from pawnshops and jewelry shops inside casinos. The moves may be part of a broader Chinese government strategy to control currency outflows in Macau, with analysts warning of the risks of a broader regulatory crackdown.

“Regulatory risks are on the rise,” Sanford C. Bernstein & Co. analysts led by Vitaly Umansky wrote yesterday in a note. “A correction in the short run may be justified if the government were to broaden efforts to reduce outflows through Macau.”

The Bloomberg Intelligence’s index of Macau casino stocks dropped 1 percent in Hong Kong trading yesterday. SJM Holdings Ltd. shares fell 2.8 percent and MGM China Holdings Ltd. slid 0.9 percent. Wynn Macau Ltd. dropped 0.5 percent, erasing an earlier gain of as much as 1.8 percent.

The government in the past has imposed restrictions on the use of credit-card payment machines in an effort to control the flow of currency out of China. Efforts to stem the money flow from China to Macau’s gaming industry are triggers for concern among investors. The machines are a popular source of cash for casual gamblers in Macau.

Bernstein analysts warned that sentiment for Macau casino shares is likely to take a hit with the Macau regulatory move highlighting risks to the “loose currency regime” that’s been in place in the territory. JPMorgan analysts DS Kim and Sean Zhuang advised investors on a wait-and-see approach before accumulating stocks on dips.

Casino stocks have also been pressured after data last week showed Macau casino revenue growth fell short of estimates for May. Analysts have warned that the upcoming World Cup could pare gaming revenue in June. MDT/Bloomberg