Casino Stock Hit as Fresh Evidence Points to Chinese Economic Decline

Posted on: January 2, 2019, 08:55h. 

Last updated on: January 2, 2019, 09:59h.

The first day of 2019 was a downer for global stock markets, largely due to increasing investor jitters over a slowing Chinese economy.

Casino stock
The Hong Kong Stock Exchange had its worst start to the year in 24 years. After a resilient 2018, the contraction of the Chinese manufacturing sector doesn’t bode well for Macau’s casinos this year. (Shutterstock)

News that China’s manufacturing sector contracted in December caused major stock indexes to fall across Asia and Europe.

The Hong Kong Stock Exchange — home to Macau’s casino stocks — had its worst start to a year since 1995, with the share prices of major players Galaxy Entertainment and Sands China both tumbling more than 4 percent. An index of Macau casino stocks showed that shares fell by 3.8 percent across the entire sector.

Last year began positively for investors in casino stock, particularly in the US, where the markets were buoyed by US President Donald Trump’s corporate tax cuts. But those gains were short-lived, and casinos were a losing bet for US investors in 2018.

Most of the major US players finished the year down more than 30 percent — their worst performance since the recession.

The Dow Jones US Gambling Index, which monitors American casino stock, showed the sector’s shares plunged 33 percent for the year, in comparison with a combined average drop of 5.5 percent for other sectors.

Uncertainty for Macau

But in Macau — despite misgivings that the slowing Chinese economy and the escalating US-China trade war would impact revenues in the world’s largest casino market — the enclave continued to experience growth and its casino stocks have been largely resilient.

Macau is almost completely reliant on Chinese visitation and has a lot to lose from a slowdown in the Chinese economy. That’s more bad news for US operators like LVS, Wynn Resorts, and MGM Resorts, which all draw a large portion of their revenues from the Macau market.

Recent research by UBS’s Robin Farley suggests that while tourists and gamblers are still visiting Macau — and plan to through 2019 — they’re spending less, and higher-income gamblers are staying away.

Bearish Sentiment Overdone?

Analysts expect the global markets to continue to experience a downtrend over the next few weeks — and while there is plenty of uncertainty, talk of a looming worldwide recession is probably wide of the mark, says Craig Johnson, chief market technician at PiperJaffray.

While acknowledging there are fundamental concerns, we do not believe the current economic backdrop warrants the degree of bearish sentiment and suspect the proverbial bar for stocks has dropped significantly,” Johnson said in a note to clients.

“Technically, we continue to see signs of an intermediate-term bottom emerging and recommend investors tactically deploy capital back into equities.”