Macau stocks caught out by ATM move

Macau stocks caught out by ATM move

Monday, December 12, 2016 Posted by Andy McCarron
Chinese authorities move against currency outflows

The political vulnerabilities of the Macau gaming market came to the fore once again late last week after the Macanese authorities announced that withdrawals from ATMs in the Chinese gambling enclave would be curtailed.

Reports had suggested there would be a cap on the amount that could be withdrawn altogether, but these turned out to be erroneous after it was confirmed that customers using Chinese-based UnionPay cards would have a limit on the per transaction amount but not on the total withdrawal amount per day.

Still, the news caused sharp falls for the share prices of Macau-related stocks on Thursday last week including Wynn Resorts, down 12 percent, Las Vegas Sands off by 13 percent and Melco Crown Entertainment down 14 percent.

Vitaly Umansky, analyst at Sanford Bernstein & Co, pointed out that the tremors would have been caused by the fact that nearly 50 percent of Chinese customers in Macau use UnionPay ATM withdrawals when visiting and also because of the mechanics of the junket system.

“We know that there are individuals who specialize in utilising hundreds of ATM cards on any given day to withdraw cash and provide liquidity to junket agents and some premium-mass players. This is where a slightly greater impact could be felt.”

Grant Govertsen suggested that the “shoot first and find out the answers later mentality” that affected the Macau stocks was an overreaction.

“We steadfastly believe the government (both mainland and Macau) are not targeting the gaming industry,” he added. “Both governments want to support the ongoing mass-market recovery rather than implement policy that might derail it.”

Instead, Govertsen suggested the new ATM policy stemmed from a recent uptick in the use of ATMs in Macau by not-so-wealthy mainlanders hoping convert renminbi to Hong Kong dollars as a result of recent Chinese currency weakness.

He noted that simply increasing the actual amount of transactions would make it more expensive for those hoping converting cash.

Over at Morgan Stanley, analyst Praveen Choudhary said regulatory pressure to stop currency outflows from China had been looking for months.

“Previous attempts to crackdown on insurance policies in Honk Kong and requiring people to declare cash more than MOP120,000 have been shrugged off by the market since those did not hurt the core of the business.

“However, this measure of cutting ATM daily withdrawals per card to MOP5,000 will impact spending per capita for grind mass and premium-mass customers (80 percent of gaming profit), which has been the key source of strength as visitations have largely been flattish.”

Totally Gaming: Those with longer-term memories than is apparently being displayed by investors will remember that the Macau casino operators are always vulnerable to negative decisions taken by either the Macanese or Chinese authorities. The market has clearly stabilised within the last quarter – after two years or more of plunging gross gaming revenues – but its future is as much in the hands of government as it is the whims of Chinese gamblers.

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