Wall Street is turning its back on Macau after months of gaming stock sell offs and the lowest revenue of any summer since 2012.
But it’s happening slowly and painfully — with analysts shaving off a percentage point here and there as bad news just gets worse.
That shouldn’t be the case, Ray Young of Sterne Agee argued in a recent note in which he took his gross gaming revenue [GGR] estimate to 0%.
Most analysts are still sitting around at 3%.
“We believe our new estimates eliminate a trend representative of “Chinese Water Torture” – constant minor downward estimate revisions on the heels of mostly known GGR disruptive issues,” Young wrote.
In other words, all Macau’s devils are already here.
This weekend, horrid economic data out of China served as another all-around reminder of what Macau was (and would continue to be) lacking for some time — enough gamers to play the games.
High roller play has suffered the most, disrupted by a $1.3 billion heist that sucked cash out of the financing system Macau uses to fund VIP play.
Even more disruptive has been Chinese President Xi’s corruption campaign. After going to Macau and checking things out, Young believes that the campaign isn’t just impacting high roller play. Mass market players are feeling it too, and things are about to get even more strict.
“A new anti-money laundering (“AML”) framework may be adopted in Macau within the next 30 days,” Young wrote in a note. “While the framework has a few new components, one Government contact believes the real risk for some will be a new “spirit of enforcement” which will come in tandem with the new framework, especially as it relates to know your customer (“KYC”) rules.”
In other words, the government might start to care about who spends money in Macau and where they got their money from.
Mass market play will also be disrupted by a general economic slow down. Much has been made of the fact that, after seeing economic indicators hit their lowest levels since the 2008 financial crisis, The People’s Bank of China is reportedly injecting 500 billion yuan ($81.35 billion) of liquidity into the country’s 5 top banks using something called the “Standing Lending Facility”.
Some may see this as a sign that the government is willing to back track from its stated commitment to tighten monetary policy and do what it normally does when it smells a whiff of crisis coming on — enact some stimulus. Markets have reacted positively to the news too.
But that isn’t the case here. On Tuesday the government’s publication, Xinhua News Agency, accused those calling for fresh stimulus to support the economy of “failing to clearly see the Chinese economy’s new normal.”
Unlike a straight up interest rate cut, SLF funds are temporary and costly to banks. They have to provide collateral. This isn’t a free ride here.
Plus, the government uses SLF for a lot of things — right before holidays (China’s National Day is coming up), and at quarter-ends — whenever the country could use some extra cash flying around.
Consider this a targeted easing measure. China uses them all the time, as you can see from the table below.
No one’s getting rescued here.