Signs are good for a strong 2017 Macau winning streak

Macau’s gaming revenues are poised to end a multi-year losing streak this year – but experts still warn the central government’s ongoing tightening capital controls could threaten the world’s largest gambling hub’s pace of recovery.

Analysts say the strengthening monetary regulations could deal a blow to the enclave’s US$30 billion gambling industry, which is seven times the size of Las Vegas and has started to see some encouraging green shoots of recovery after two years of tumbling revenues.

Those tougher times have been blamed on President Xi Jinping’s sweeping crackdown on excessive spending by state officials, that looks to have scared off high-rolling punters.

Gambling revenue dropped 3.3 per cent in 2016 to 223.2 billion patacas (HK$216.67 billion), the slowest decline in two years. But thousands of tourists have flocked to two newly-opened casino resorts in the former Portuguese colony in the past three months, according to data from the Macau Gaming Inspection and Coordination Bureau released on Sunday.

“We believe the Macau cycle has turned, and 2017 could show a 10 per cent gross gaming revenue growth – the first in four years,” said Morgan Stanley gaming analysts including Praveen Choudhary and Alex Poon.

The dramatic fall in its recent gambling revenue has forced Macau to shift its focus to attract more mass-market guests.

“Ongoing infrastructure projects, such as the bridge to Hong Kong, a permanent Taipa ferry terminal and a rail link to Zhuhai airport, should make Macau more accessible,” wrote Fitch Ratings analysts led by Alex Bumbazhny in a December note.

A wave of new resort openings by MGM China and SJM in 2017 are also expected to spur tourist visitor flows, they say.

Beijing’s recent moves to tighten the screws on yuan remittances, however, to stem what have become worrying levels of capital flight and stabilise the country’s depreciating currency, have heightened concerns that those could stall the industry’s recent growth momentum.

“We think the risks of more capital outflow control measures should not be ignored and will potentially prevent a robust gaming revenue recovery north of mid-single-digit growth next year,”said Morningstar analyst Chelsey Tam.

Last month, Macau monetary chiefs imposed new restrictions on the amount of cash people using mainland-issued China Union Pay bank cards to withdraw cash from ATM machines in the city.

“Meaningful depreciation of the Chinese yuan against the US dollar could also trigger more capital outflow control measures,” said Choudhary.

Over the past few years, Macau regulators have launched various crackdowns on underground banks and pawnshops using China UnionPay point-of-sale terminals to illegally spirit cash out of the mainland, in an effort to stem capital flight.

Macau’s monthly gambling revenues returned to growth in August, posting their strongest gain in three years in November thanks to the openings of Wynn Macau’s Wynn Palace and Sands China’s The Parisian projects, that proved instant magnets for mainland holidaymakers.

The rising income also helped Macau end a two-year overall economic contraction, lifting its gross domestic product by four per cent in the third quarter.