MDT Report | Yuan devaluation could negatively impact mass gaming market

Macau’s mass gaming market could be negatively impacted by China’s devaluation of the yuan, according to Union Gaming Research analyst Grant Govertsen.
“Based on the current two-percent decline in value of the renminbi, we would expect the mass market story to be negatively impacted by up to two percent over the coming weeks or months,” he told the Times.
China’s Central Bank allowed the yuan to drop further against the US dollar yesterday. One day after it had decided to devalue its currency by 1.9 percent, China’s Central Bank allowed another drop, this time by 1.6 percent.
The depreciation of the yuan against the US dollar sparked fears of a negative impact on retailers, for instance, in Hong Kong, since the Hong Kong dollar is pegged to the greenback.
Mr Goversten believes that the implications of this move on Macau’s gaming market won’t be too serious.
Nevertheless, he stated that, “If we were to think about how this could influence the behavior of Chinese customers to Macau, our view is that it would be the mass market customer who would feel the greatest impact.”
The gaming analyst recalled that unlike VIP customers, who have almost unlimited resources, mass market gamblers have a finite amount of money that they would bring to Macau.
“So if your budget is RMB2,000 and one week ago you exchange that for Hong Kong dollars… and then you would come back this week and those same RMB2,000 get you two percent fewer Hong Kong dollars. As a result, your bank roll is a little bit smaller,” he added.
Although the yuan’s current devaluation is said not to play a big role on Macau’s mass gaming industry, risks of an impact on gaming revenue might arise if the currency falls further.
“Should the central government decide to let the renminbi devalue even further, then there’d be even greater risk of mass market revenues declining even more. I think that’s what we are seeing today [yesterday] with the stock prices down for the most part around six percent for the big [gaming] operators,” Mr Govertsen said.
The gaming analyst acknowledged that the future of Macau is much more mass-
market-focused, which makes the industry want to avoid “any pain being brought to the mass market customer.” But again, Mr Govertsen pointed out that “Macau has been caught in the cross fire.”
“Things like this are entirely out of the gaming operators’ and local government’s control,” he stressed.
Local economist and president of the Institute for European Studies of Macau, José Luís Sales Marques, believes that Macau’s gaming sector will not be greatly impacted by the yuan’s devaluation for the interim.
“Even with a three- or four-percent devaluation… the effect, by itself, wouldn’t be too grim. But, of course, if this adjustment continues, then it’s a different story,” he told the Times.
Mr Sales Marques stressed that, so far, it doesn’t appear that such a devaluation will have a great impact on Macau’s mass market specifically. But he acknowledged that there’s a potential psychological effect that could come into play. “We’ll be looking into what kind of influence people think this will have in the Chinese economy; what the expectations toward Chinese businesses’ and economic development are.” he recalled. “It’s difficult to foresee what’s going to happen,” he added.
“I think we need to be on the alert but there’s no need to draw hasty conclusions. But, of course, this is no incentive for Macau’s tourism and gaming development,” he acknowledged.
Furthermore, Mr Sales Marques does not believe that mainland Chinese tourists will think twice before traveling or buying goods here.
Bloomberg reported that Chinese policy makers added to the pain for international companies when they decided to devalue the yuan by the biggest amount in two decades, causing a slump in shares of European luxury companies.
Louis Vuitton sales in China, Macau and Hong Kong fell about 10 percent in the second quarter, according to Paris-based LVMH.
The devaluation of the yuan means that Chinese travelers’ purchasing power outside China will be hurt, says Alessandro Migliorini, an analyst at Mirabaud Securities LLP. “What really counts is what lies beneath the decision to devalue the yuan,” he said. “The most significant worry is the big picture: that China’s economy is weakening.”