Macau Gambling Revenue Hits High

Macau, the only place in China where casino gambling is legal, has seen gambling revenue soar since the end of 2009, and is poised to rake in more than five times the gambling revenue of the Las Vegas Strip this year.Gambling revenue in the Chinese territory rose to 26.85 patacas (US$3.36 billion) in October, up from 18.87 billion patacas in the same month a year earlier, data from Macau's Gaming Inspection and Coordination Bureau showed.

October's revenue haul beat the territory's previous high of 24.77 billion patacas hit in August. It was boosted by China's golden week holidays, which fall in May and October.

The strong numbers were recorded during a month of extreme volatility in casino stock prices due to intensifying concern that a liquidity crunch in China could cool the casino industry's explosive growth. Though data don't show any evidence of a slowdown in Macau--in the January-October period, Macau's gambling revenue was 45% higher than a year earlier--investors dumped casino shares in early October with SJM Holdings Ltd., Macau's largest operator by revenue, tanking 26% in just one trading session.

The strong October revenue figures led the Hong Kong-listed shares of Macau's six casino operators to outperform the territory's benchmark Hang Seng Index, which fell 2.5%, hurt by a China manufacturing activity report that fell short of economists' forecasts. Galaxy Entertainment Group Ltd. led the way, rising 0.7% to HK$16.26, while Wynn Macau Ltd.'s shares rose 0.5% to HK$22.35. Sands China Ltd.'s shares fell 0.2% to HK$23.85, but that marked a 6% rebound from an intraday low of HK$22.50. Stanley Ho's SJM Holdings was the weakest link, falling 1.8% to HK$13.44.But the Chinese manufacturing data illustrate the complex outlook for the world's second-largest economy, the source of most of the money bet on Macau's baccarat tables. Disappointing Purchasing Managers Index figures, combined with recent government measures to help smaller businesses, have fueled expectations that China's tightening cycle is over, but the poor data also indicate that a tight monetary policy and weakening export demand have started to take a toll on economic growth.

Less clear still is the effect any macroeconomic developments in China could have on Macau's gambling industry, which is driven by the opaque and notoriously difficult-to-forecast VIP business. In a recent report, Bank of America Merrill Lynch analyst Billy Ng wrote that the key fundamental drivers of Macau gambling growth are the wages of Mainland Chinese--and hence their net worth--the number of visitors to Macau, and the value of the Chinese currency.

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