Macau Casino Stocks Crimped by China Regulatory Crackdown

Shares of Macau concessionaires are slumping Tuesday, as Beijing continues clamping down on consumer and technology companies, prompting global investors to rapidly ditch Chinese stocks.

macau stocks
macau stocks
Slumping Chinese stocks are taking a toll on Wall Street. Macau equities are getting caught up in the regulatory headwinds. (Image: Quartz.com)

In midday trading, Las Vegas Sands (NYSE:LVS) — operator of five Macau integrated resorts — and Wynn Resorts (NASDAQ:WYNN) are both off more than four percent. City of Dreams operator Melco Resorts & Entertainment (NASDAQ:MLCO) is lower by six percent following a downbeat second-quarter earnings report that’s being amplified against the backdrop of the regulatory crackdown.

This year, the Chinese Communist Party (CCP) ratcheted up scrutiny of consumer-facing internet and technology companies, creating pressure on the related stocks. Last month, Didi, the equivalent of Lyft or Uber in China, listed on the New York Stock Exchange in a highly anticipated initial public offering (IPO). Soon thereafter, Beijing told the company to stop registering new customers and drivers, wiping out billions in market value in the process.

Last week, the CCP said it’s banning for-profit private tutoring services — many of which are publicly traded — stoking fears of a widespread regulatory crackdown that’s seeping into Macau.

Macau Stocks Not Immune to Panic Selling

Already lagging due to the pace of recovery in the world’s largest gaming hub, Macau gaming stocks are getting caught up in the regulatory drama.

Tens of billions of dollars of market capitalization has been wiped off some of China’s largest internet companies, including Alibaba, Meituan, and Tencent, prompting some investors to ditch Chinese stocks. For example, Cathie Wood’s ARK Investment Management is selling positions in Chinese equities across its suite of exchange traded funds.

The regulatory clampdown, which started in earnest earlier this year when Beijing halted Alibaba’s plan to list its Ant Group fintech unit, lingers as Macau inches toward gaming license renewal. Permits for all six concessionaires come due next year, and the process is already delayed by the coronavirus pandemic.

Market observers previously expected the re-tender process would go smoothly, with the worst-case scenario being an extension of current policies until Macau authorities could more accurately gauge the recovery from the pandemic. However, the regulatory crackdown, which isn’t targeting gaming operators, is taking a toll, as highlighted by LVS flirting with its lowest levels in a year and Wynn hovering near its lowest price since February.

Gaming Sell-off May Be Overdone

Melco CEO Lawrence Ho points out that the industry is a critical driver of the Macau economy, and that concessionaires work closely with the government. Those could be signs these stocks are unfairly ensnared in the regulatory sell-off.

So I think it’s different from industries that are very new in China that deal with a lot of sensitive customer data,” he said on a conference call with analysts earlier today. “So whether it’s the education industry or tech. So I think on that basis, all the concessionaires have been working closely with the government for over the years. So I don’t expect any surprises, whether it’s right now or during the license renewal.”

He adds the gaming industry drives 80 percent of Macau’s tax revenue and employs a quarter of the special administrative region’s (SAR) working population.

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