Macau casinos set for ‘single-digit’ growth rebound in 2017, but vulnerable to China’s capital control

PUBLISHED : Monday, 13 February, 2017, 3:13pm
UPDATED : Monday, 13 February, 2017, 10:16pm

Macau’s gaming industry has shown signs of life and will see a swing to positive single-digit growth in 2017, but optimism may be restrained by mainland China’s policies, including stricter capital control, a corruption crackdown, and a potential large one-off yuan depreciation, according to analysts from Fitch Ratings.

After a dismal 2016, Macau, the world’s largest gaming market, will witness a mid-to-high single-digit growth in gaming revenues for this year, underpinned by the recovery in both VIP player and premium mass segments, the stabilisation in China’s economic growth, and the opening of new casino resorts, said Alex Bumazhny, Colin Mansfield, and Vicky Melbourne, analysts for Fitch Ratings, in a recent research report.

The industry has seen its monthly revenue growth average about 10 per cent since last September, according to forecasts by Fitch.

“This growth coincided with the opening of The Parisian and Wynn Palace in the third quarter of 2016, as well as relatively solid China economic indicators,” they said.

Wynn Macau opened the doors to its US$4.2 billion casino resort Wynn Palance on the Cotai Strip on August 22. Meanwhile, Sands China, a subsidiary of US casino tycoon Sheldon Adelson’s Las Vegas Sands, launched its US$3 billion The Parisian Macau resort on September 13.

MGM Resorts plans to kick-off its US$3.1 billion MGM Cotai casino in the second half of 2017.

“We expect the returns on investment of the new resorts to improve as the market pivots toward the mass market segment and infrastructure projects come online,” Fitch analysts said.

According to Fitch’s estimation, China’s economy will grow 6.4 per cent in 2017, only slightly lower than the 6.7 per cent in 2016.

“Our positive long-term outlook for Macau is supported by the growing Chinese middle class, expanding Chinese economy, albeit at a slower rate, and our belief that the region remains underpenetrated,” Fitch analysts said.

Macau is the only place in China where casino gambling is legal, and mainland Chinese and Hong Kong residents comprise nearly 90 per cent of total visitation, according to figures from Fitch.

“China’s pivot from an investment to a consumption-oriented economy ... should remain supportive of mass-oriented leisure and travel sectors,” they added.

However, the industry faces notable risks and constraints.

Policies from mainland China may adversely affect Macau gaming, including a crackdown on corruption and tightened rules on visa and capital outflows, Fitch said.

“Our optimism is restrained by China’s renewed efforts to control currency outflows ... and the potential cooling of the recently hot real estate market in tier one cities,” they said, noting new limits on the amount of cash that can be withdrawn from ATMs per transaction.

Holders of China-issued ATM cards were able to withdraw 5,000 patacas per transaction following the introduction of new limits in December by the Monetary Authority of Macau, while the daily ceiling for withdrawals remains unchanged at 10,000 yuan.

In addition, a “large one-off” depreciation of the yuan may also disrupt the growth momentum of the mass market growth, Fitch analysts said.

In addition, “meaningful new supply” coming online over the next several years in Macau and surrounding jurisdictions, such as Philippines, Australia, and South Korea, and the potential for a full smoking ban in the city’s casinos, may also threaten the outlook of Macau, they added.