MGM China Booted From Major Hong Kong Equity Benchmark by Index Provider MSCI

Posted on: November 11, 2019, 02:00h. 

Last updated on: November 11, 2019, 10:04h.

MGM China Holdings Ltd., the operator of two Macau casinos, is being removed from the MSCI Hong Kong Index by the benchmark’s issuer.

MGM China, the company on which Pansy Ho controls a board seat, is being tossed from the MSCI Hong Kong Index. (Image: Forbes)

MSCI, one of the world’s largest providers of indexes used by issuers of index and mutual funds, made the announcement last week as part of its semi-annual index review. The firm didn’t give a reason for the removal of the gaming company’s stock from the Hong Kong gauge, but said MGM China will be removed after the close of Asian markets on Nov. 26.

The MSCI Hong Kong Index is designed to measure the performance of the large and mid cap segments of the Hong Kong market,” according to MSCI.

At the end of October, the gauge was home to 47 stocks, representing 85 percent of Hong Kong’s listed market capitalization.

MGM China’s departure from the MSCI Hong Kong Index means that passive funds tracking that barometer and active managers that benchmark to it will be forced to sell shares of the casino operator to be aligned  with its investment objective.

Interesting Decisional

As of Nov. 8, MGM China’s weight in the Hong Kong index was just 0.29 percent. Only Shangri-La Asia Ltd., an international luxury hotel chain, had a smaller weight in the benchmark at 0.25 percent.

Still, the expulsion of the operator of MGM Macau and MGM Cotai from the MSCI Hong Kong Index is interesting when considering that the benchmark provider isn’t removing any other gaming stocks.

That index remains home to, in order of position in the gauge, Galaxy Entertainment Holdings, Sands China, Melco Resorts. and Wynn Macau. Those gaming companies currently combine for about 6.65 percent of the MSCI Hong Kong Index and represent the bulk of the benchmark’s 7.66 percent weight to consumer cyclical stocks.

It’s possible that MGM China was removed from the MSCI gauge to make room for Chinese e-commerce giant Alibaba. That company is commencing an $11 billion Hong Kong listing, which will lead to its inclusion in the relevant MSCI Index.

What’s Next

Shares of MGM China may be able to find another home if Macau opens its own stock exchange. Earlier this year, the Special Administrative Region (SAR), as part of its effort to diversify its non-gaming economy, revealed plans for a yuan-denominated equity market that would be akin to an offshore Nasdaq.

Given the limited scope of publicly traded companies in Macau that aren’t involved in casino operations, it would be reasonable to expect that if an equity bourse comes to life there, it would feature some or all of the aforementioned gaming equities, including MGM China.

MGM China is majority controlled by Las Vegas-based MGM Resorts International (NYSE:MGM). MGM CEO Jim Murren is a member of the board along with Pansy Ho, one of the children of Macau gaming legend Stanley Ho.

MGM China’s 2011 initial public offering (IPO) along with subsequent share sales to the US parent company, have driven Ho’s net worth to an estimated $4.3 billion, making her one of Hong Kong’s richest women.