Macau Back to Pre-Pandemic Highs in 2024, Diversity Further Out, Says Moody’s

Posted on: May 18, 2021, 08:54h. 

Last updated on: May 18, 2021, 11:28h.

Macau’s gaming-dependent economy should be back to pre-coronavirus pandemic heights by 2024. But diversification efforts remain longer-ranging, according to Moody’s Investors Service.

A hotel attendant checks a woman’s temperature at the Galaxy Macau casino and hotel on the Cotai strip during the pandemic. (Image: Bloomberg)

In a new report, the research firm notes that while the special administrative region’s (SAR) economy “has been the worst hit by the coronavirus globally,” the casino hub maintains strong sovereign finances. Moody’s has an Aa3 rating, with a “stable” outlook on Macau’s credit grade.

“The Aa3 rating reflects a balance between inherent credit constraints and strengths. The growth volatility of Macao’s economy is among the highest of all rated sovereigns,” said the credit evaluator. “While efforts to diversify growth away from the gaming industry have been ongoing since 2015-16, Moody’s does not expect them to yield material results over the near-term.”

“But despite the highly volatile nature of economic growth, Macao’s vast fiscal and external reserves — significantly stronger than those of similarly rated peers — and very high per capita incomes continue to support its credit profile,” the credit evaluator continued.

Moody’s commentary comes as the SAR’s six concessionaires are reporting improving profitability and higher spending and visitation data.

Macau Recovery Going to Take Time

Entering 2021, Macau was widely viewed by analysts as poised for a more rapid rebound from the pandemic than rival gaming markets, including Las Vegas.

However, a series of fits and starts and head fakes prompted investors to grow frustrated with the pace of recovery. As a result, analysts expect Macau’s gaming economy won’t flirt with pre-pandemic levels until next year, with a more earnest recovery developing in 2023, indicating an inflection point still hasn’t arrived.

“Under Moody’s assumptions, a full recovery in tourist arrivals — and therefore, gaming revenues — will not occur until early 2023,” said the ratings agency. “These assumptions are underpinned by tourist arrivals gradually recovering in the second half of this year, such that total arrivals will still remain about 60% below pre-coronavirus levels in 2021, before improving to record a 25% shortfall in 2022 and an increase relative to pre-pandemic levels only in 2023.”

About 70 percent of Macau visitors hail from mainland China, according to the research firm. Hong Kong, another major artery for travelers entering the gaming hub, was recently rebuffed in its efforts to establish a travel bubble with Macau.

China Ties

Macau is the only Chinese territory where gambling is legal, and its proximity to the country and its dependence on tourists from there lever the SAR to the performance in the world’s second-largest economy.

Macao’s gaming industry is also vulnerable to slower growth in China and Chinese government policies, as well as to competition from neighboring destinations, such as Cambodia, Singapore, and Japan,” said Moody’s.

“Moreover, as a SAR under the ‘one country, two systems’ policy, Macao’s credit profile is closely tied with that of China’s across economic, institutional, and political aspects.”

Fortunately for Macau concessionaires, China’s GDP grew at a record pace of 18.3 percent in the first quarter, and it’s expected to be one of the faster-growing major economies this year.