Below is an excerpt from a complimentary research note by our Gaming, Lodging & Leisure analyst Todd Jordan. We are pleased to announce our new Sector Pro Product Gaming, Lodging & Leisure Pro. Click HERE to learn more.
Trading in Macau stocks was ugly yesterday, as investors bid LVS and WYNN back down 10-11% following a nice recovery over the past month.
If that appeared “panicky” to some then what would they call the overnight trading in the Macau stocks traded in Hong Kong? Sands China (1928.HK) led the way with a 32% drop and all the major Macau stocks declined at least 20%.
This carnage was mostly sparked by new gaming law proposals released yesterday in conjunction with the concession renewals.
While the industry still seems unanalyzable from an investment perspective to some extent, our overall view is that the proposals offered little clarity surrounding the future operating structure – it’s as uncertain now as it was before the draft proposals were released.
While our contacts on the ground also lack conviction in how the structure will ultimately look, they now feel strongly that all the concessionaires will get renewed.
There are many ways to interpret the vague government proposals and the markets seem to be assuming the worst on all of them. Let’s run through some of the potential repercussions that investors seem to be fearing:
What is clear is that if many of these fears come to fruition, the ramifications for future investment in China by any business could be huge.
Has China given up on foreign investment?
We find it hard to believe that they have despite the ragingly negative sentiment. That said, are we pounding the table on Macau stocks? With no Macau stocks on the Hedgeye Best Idea List, the short answer is no.
The industry is almost unanalyzable from an investment perspective due also in part to zero tolerance Covid policies that can shut down the SAR in short notice. Besides, there are much less riskier opportunities in GLL and even in gaming as we continue to recommend regional gaming stocks.
However, we’ll continue to provide our perspective and feedback from our contacts in Macau as there are many people who are willing to take on significant risk for significant upside.