Macau investors wary of policy changes
Investors in Macau stocks took some chips off the table yesterday, rattled by concerns about tighter macroeconomic policy on the mainland and the possibility of renewed visa restrictions on travel to the city.
Following a significant uptick in fourth-quarter inflation, economists now expect Beijing to take steps to stabilise prices by seeking to curb excess liquidity on the mainland. Gaming analysts say that would have a trickle-down impact on Macau, where monthly casino revenues since August have set records as credit-fuelled VIP gambling volumes soared on the back of loose lending.
'The key risk on Macau remains a significant contraction in liquidity,' CLSA Asia-Pacific Markets analyst Aaron Fischer wrote in a research note. 'Liquidity goes into Macau's VIP market just like it goes into the equity and property markets.'
Casino revenue in Macau rose 67 per cent from a year ago during the first 20 days of this month and could rise 50 per cent for the month, he said. That compares with 35.6 per cent year-on-year growth in the second half of last year and Fischer's forecast of 17 per cent growth for this year.
Macau's red-hot growth rate in recent months may trigger concerns in Beijing that the gaming industry is again overheating, and it raises the prospect of renewed visa restrictions on mainland travellers to the city.
Many industry executives and analysts believe Beijing would like to see 'GDP-plus' in Macau, where casino revenue expands at a rate slightly higher than the mainland's GDP growth rate, which was 10.7 per cent year on year in the fourth quarter.
Beijing regulators have begun reining in liquidity after more than a year of expansionary monetary policy. Last week, the central bank raised the reserve requirement ratio (RRR) for mainland banks for the first time since June 2008, lifting it by 0.5 per cent and effectively limiting the amount of loans banks can make in relation to their deposit base.
'We believe the increase in RRR, perhaps followed by additional tightening in coming weeks and months, is an indirect precursor to re-tightening of Macau visa restrictions in order to moderate market growth at a GDP-plus-like level, [equivalent] to 15-20 per cent casino revenue growth in 2010,' Las Vegas-based Union Gaming Research analyst Bill Lerner wrote last week in client note.
CLSA's Fischer, by contrast, expects some cooling measures, but not in the near term as he says both the mainland and Macau have yet to see any major side effects from their recent rapid growth.
Shares in Macau casino operators fell between 3 per cent and 14 per cent yesterday morning after the release of the fourth-quarter GDP and inflation data. But they had mostly recovered by the close of trading. Wynn Macau ended down 5.7 per cent. Melco International Development, Galaxy Entertainment and SJM Holdings were down 1 to 2 per cent and Sands China rose 0.93 per cent.