Why the world is watching Macau’s red-carpet welcome for mainland Chinese visitors

Macau offers a small but significant test case of reopening, with big implications for global tourism and the normalisation of China’s discretionary spending

Hyomi Jie

Published: 3:30pm, 25 Jul, 2021

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London is off limits to most Chinese tourists due to travel curbs, but an alternative closer to home is the new The Londoner Macao casino resort. There, they will encounter a life-size replica of Big Ben, staff dressed as Beefeaters, and a hologram of footballer David Beckham leading guests on a virtual black cab tour of London.

Macau, the world’s biggest casino hub, is pulling out all the stops to lure the dragon’s share of mainland China’s pent-up travel demand. Among the perks offered are “buy one, get one free” flights, with generous spending discounts for use in Macau dished out at travel fairs in mainland cities.

For investors, Macau offers a small but significant test case as one of the few places in Asia staging a tentative recovery in cross-border travel, with big implications for global tourism and the normalisation of China’s discretionary spending.

While Europe and the United States are moving to reopen their doors, travel restrictions and quarantines look set to stick for longer in most parts of Asia, where vaccination rates generally lag behind those in Western countries.

The reopening trade has caught on worldwide since the third quarter of last year, spurring huge gains in some travel-related and consumer discretionary stocks, especially in Europe and America.

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Asia has seen milder rallies, with shares in Macau casino operators, such as Galaxy Entertainment, Sands China and SJM Holdings, still lagging behind their Western peers.

Gambling demand in Macau, the only place on Chinese soil where casinos are legal, often serves as a bellwether for China’s discretionary consumer spending. Outside the equity realm, Macau casino bonds are a key component of Asia’s high-yield dollar credit market.

Pre-pandemic, Chinese tourists were the fastest-growing visitor source for many countries, with average annual overseas spending of around US$250 billion. Their annual global spending has more than quadrupled over the decade to 2019.

While still a shadow of pre-pandemic levels, mainland tourists have underpinned a choppy recovery in Macau, where stand-out Covid-19 controls has meant no local cases since April last year.

The travel bubble between Macau and China’s mainland, which started last September, supported a rise in casino revenues until the end of May, when fresh infections hit neighbouring Guangdong.

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Under quarantine-free travel arrangements, Macau’s daily visitor arrivals jumped to nearly 28,000 in May, more than tripling from the third quarter of 2020. The casino revenue of 10.4 billion patacas (US$1.3 billion) was the highest monthly tally since the pandemic started – vital for Macau, which relies on gambling for some 80 per cent of its fiscal revenue.

While still small fractions of pre-Covid-19 levels, these are encouraging signs for the reopening trade.

Most gamblers visiting Macau are so-called premium mass players, whose spending power falls between high rollers (who can gamble tens of thousands of dollars per hand) and traditional cash-based “mass market” players. Even with the travel bubble, soft restrictions remain in place, such as stringent Covid-19 tests, slow visa processing and frequent checks at transport hubs.

As such, visitors to Macau these days tend to stay longer and spend more freely. An average visitor spent 3,556 patacas in the first quarter, more than triple that of last year and more than double the 2019 level.

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There are, however, bumps in the road to recovery, with regional Covid-19 trends threatening cross-border travel. The latest Guangdong outbreak prompted health authorities to test millions of residents and tighten travel rules.

Vaccine roll-outs have also accelerated across China, with more than one billion doses given out. Daily new local infections in Guangdong have pretty much fallen back to zero. Macau’s pace of recovery will depend a lot on how well China keeps the virus in check.

China’s domestic tourism is already showing signs of a boom that began last year, although outbound or cross-border travel remains very much limited to Macau. Domestic flights, rail passengers, subway rides and (sadly) traffic jams have all fully recovered to 2019 levels.

Macau, no doubt, hopes it can cash in on the action and be the first port-of-call as mainland China’s tourists start stepping out again. The rest of Asia, and the tourism-dependent industries globally, will be watching.

Hyomi Jie is a portfolio manager at Fidelity International