Scrutiny of currency transactions sends casinos slumping

Macau casino operators can’t catch a break. Just as gambling revenue in the tiny enclave starts to recover from a two-year slump, concern is building that China’s increased scrutiny on capital outflows will once again curtail spending in Macau’s casinos. Galaxy Entertainment Group Ltd. and Sands China Ltd. tumbled more than 3 percent in intraday trading on Hong Kong’s stock market yesterday after China’s currency regulator announced extra requirements for citizens seeking to buy foreign exchange.

The declines show how jumpy traders are when it comes to Macau casinos and Chinese efforts to tighten capital controls. Gambling stocks plunged last month after the South China Morning Post reported China would cut UnionPay ATM daily withdrawal limits in the city. In the end, the new restrictions turned out to be less harsh than investors feared. Casinos in Macau, which has retained its own currency and government since the Portuguese handed the city back in 1999, are reliant on mainland Chinese visitors for profits.

“Measures to tighten controls in foreign exchange purchases are fueling concerns that China may roll out further restrictions on UnionPay overseas purchases,” said Sonija Li, an analyst at Kim Eng Securities (Hong Kong) Ltd. “That is negative for casino operators.”

The State Administration of Foreign Exchange said on Dec. 31 that it wanted to close loopholes exploited for purposes such as money laundering and illegally channeling cash into overseas property. While the regulator left unchanged quotas of USD50,000 of foreign currency per person a year, citizens must now give a more detailed account of the planned use of funds as well as pledge it won’t be used for investments abroad.

China’s central bank also said Friday it will tighten rules for banks to report cross-border customer transactions starting July 1 as part of stepped-up efforts to curb money laundering and prevent terrorism financing.

Galaxy Entertainment closed 1.3 percent lower. The stock is down 13 percent from its November high. Sands China dropped 0.3 percent. Both companies rebounded in 2016 after tumbling in the two previous years as the outlook for gambling improved. Data released on Sunday showed Macau casino takings rose 8 percent in December from a year earlier, less than the 9 percent expected in a Bloomberg survey.

Analyst expectations of high gambling revenue growth this year are “difficult to justify” given looming incremental policy tightening, including those related to money flows from China, Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo wrote in a note. Kana Nishizawa, Jeanny Yu and Lisa Pham, Bloomberg