Macau Plans to Criminalize Illegal Money Exchanges
Macau casino stocks have been under pressure recently, especially since the news broke that the Special Administrative Region (SAR) is moving to criminalize unlicensed money transfers when they are conducted in order to exchange cash for betting.
Visitors to the casino hub are forbidden by China from arriving with more than $5,000 in cash. However, gamblers have long circumvented the rule by using local money exchangers. Gamblers simply send cash in advance and collect it upon arrival at the Chinese territory. Demand for money transfer services in Macau is further increased as China also places limits on how much money its citizens can withdraw from bank accounts using debits when they are outside of the country.
However, now Beijing is making an effort to clamp down on the system.
Pressure on Stocks Expected to Increase
As a result, some analysts are predicting that Macau casino stocks, which have been trending lower for several months, could now come under more selling pressure.
In a recent report, Citigroup analysts George Choi and Ryan Cheung wrote:
“In our opinion, the news about the Macau government’s decision to criminalize money exchange activities could bring some noise and lead to near-term share price weakness.”
The latest version of the “Law to Combat Gambling Crimes” will see those who operate money transfer businesses designed to facilitate gambling in Macau casinos face up to five years in prison if they do not have the correct licenses. Furthermore, the law would ban those who utilized the services from entering Macau casinos for between two and ten years. According to legislative assembly chairman Chan Chak Mo, lawmakers will vote on the bill before the end of the year.
Adding further pressure to the Macau gaming equities is the fact that the people most likely to use the money transfer services are premium-mass players, in other words, those who bet more than the average player but less than VIPs. If left unable to access cash, these players could abandon Macau and turn to alternatives such as online baccarat.
The Importance of Premium-Mass Players
The premium-mass segment is seen as more important than ever in Macau. Not only do players in this category spend more than mass-market bettors, but due to the previous crackdown on the VIP junket business, the casinos are already suffering from a lack of big spending customers.
The Citigroup analysts added in their report:
“Although most players have their own legitimate ways to get their funds over to Macau — and these small money touts are unlikely [to be] the main fund facilitator for premium mass players – we are afraid that this negative news could add uncertainties and hurt the already fragile investment sentiment against the Macau gaming sector.”
While the amount of money exchanged by unlicensed money transfer services is unknown, in 2023, Bloomberg reported that authorities in Macau detained 10,000 people for providing related services.
Macau Casino Stocks ‘Fragile’ but Outlook Is Positive
Despite a run of mostly solid monthly gross gaming revenue (GGR) data, on the day news broke about the new laws, a Bloomberg Intelligence index of Macau casino stocks was around 170, having been north of 240 in May. The decline is a result of investors’ worries regarding the stocks as value plays.
However, despite these short-term worries, Citigroup did note that recent data shows Macau is still one of the top destinations for travelers from mainland China. It also said that the low current prices of Macau gaming stocks are unwarranted, presenting a valuable opportunity for long-term investors.
“The share price correction on the sector year to date is overdone and beyond fundamentals, in our view. What some investors are now concerned about Macau (GGR growth, sustainability, intense competition etc) cannot be worse than COVID – arguably the most catastrophic event in its history. At that time Macau had close to zero revenues and there was no visibility on reopening. Industry daily burn rates amounted to millions of US dollars and casino operators had to borrow to stay afloat.
In contrast currently visitation has been gradually recovering, averaging 120,000 a day in early August. Mass GGR has recovered to 115% vs pre-COVID and shown positive year-on-year growth for consecutive months contrary to concerns about the weak Chinese economy to hurt demand.
[As such], share prices of some Macau names are unjustifiably trading at below or near COVID levels and we suggest long-term investors accumulate Macau.”
