The proverbial glass is at least half empty in Macau. However, bulls still have several arguments in their favor looking into late 2015.
Gaming revenue has plummeted in Macau, dropping 37 percent in the first quarter from last year’s peak as the slump extended from the VIP segment into the mass market.
Challenges include a prevailing anti-extravagance mindset among wealthy mainland Chinese, a widening smoking ban and potential mainland visitation limits.
With mainlanders accounting for up to 68 percent of visitors, these factors are critical.
The mainland housing market is also a problem. An extended downturn in home prices may dent consumers’ perceived wealth and discretionary spending, including trips to Macau.
Prices of existing homes are now falling year on year in almost all major Chinese cities.
Several factors support a bull case scenario, however.
Macau casinos will revert to a model that worked in the past: “Build it, and they will come.”
Two new major integrated resorts will open this year, and three more should follow next year.
Investments in transportation will also bring mainlanders from more distant locations to Macau.
Also, when China cut rates and introduced easing measures in 2008 and 2012, growth in consumer discretionary spending followed.
Policymakers are stepping up again to support growth and rebalance the economy toward consumer activity.
This may create a more constructive backdrop for casino revenue.
The views expressed in this article are those of Tim Craighead, director of Asian research and senior gaming analyst at Bloomberg Intelligence.
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