Casino stocks rebounded after the government of Macau, the world's largest gambling market, placed restrictions on ATM withdrawals that weren't as harsh as investors had anticipated.
Mainland China-issued ATM cardholders will only be able to withdraw 5000 patacas ($838) or HK$5,000 ($864) at a time, effective from Friday, according to a government statement. However, the daily limit on withdrawals remains the same at 10,000 yuan ($1890). That eased the concerns of investors, who had sold off casino shares after an earlier report in the South China Morning Post that officials were reducing the daily ceiling by half.
Shares of the Melco Crown Entertainment - which is part-owned by James Packer's Crown Resorts - climbed 9.1 per cent in New York on Friday, reversing some of their losses from the day before. Las Vegas Sands shares climbed as much 6.7 per cent, Wynn Resorts 6.4 per cent and MGM Resorts International rose 5 per cent.
While the moves were designed to restrict currency movement out of China, investors in gaming stocks are particularly sensitive to measures by tighten capital controls.
The city's $US30 billion ($40 billion) gaming industry is rebounding after two years of contraction as operators including Melco Crown and Wynn opened new resorts.Gross gaming revenue rose for the fourth straight month in November, recording the strongest year-on-year growth since February 2014.
China is trying to moderate Macau's growth by reducing travel visas and restricting the flow of excess capital and credit availability, "and that is what you saw this week," said Jim Murren, chief executive officer of MGM.
"I'm sure there will be some modest revenue impact, but it will not be severe and certainly not long term," Murren said. "I think it will sort itself out soon."
Union Gaming analyst Grant Govertsen said the new caps are aimed at stemming the recent increase in overseas ATM transactions as a way for some mainland Chinese to convert yuan to Hong Kong dollars, due to weakness in the mainland currency. The ceiling will make currency conversions to Hong Kong dollars less attractive by doubling transaction fees, since people with have to make multiple withdrawals to get the same amount of cash, he wrote in a note.
"We steadfastly believe the government (both mainland and Macau) are not targeting the gaming industry," Govertsen wrote. "Both governments want to support the ongoing mass market recovery rather than implement policy that might derail it."
Stem currency conversions
The withdrawal limit on each ATM transaction has "virtually no impact on gaming demand/fundamentals, and limited overhang on sentiment/stocks," wrote DS Kim, an analyst at JP Morgan in Hong Kong.
Still, Wynn Macau closed 7.1 per cent lower on Friday amid fears the caps on ATMs would be higher. It had dropped as much as 13 per cent. Sands China fell 7.9 per cent and Galaxy Entertainment declined 7 per cent. In Sydney, Crown Resorts lost 5.3 per cent, having fallen as much as 8 per cent during the day.
MGM's Murren said the selloff of Hong Kong stocks was a "massive overreaction." "There was a lack of context of what the Chinese government is trying to accomplish," he said.
Macau's gross gaming revenue won't be affected by the new ATM transaction change limit, although the withdrawal limits may change in the future, according to Vitaly Umansky, an analyst at Sanford C. Bernstein & Co.
Series of restrictions
Macau has continued to tighten scrutiny of its casino industry amid the nascent gambling revenue recovery. Stricter regulations concerning junket operators, money laundering and phone betting this year are likely to benefit the Chinese territory's business, Paulo Chan, director of the Gaming Inspection and Coordination Bureau, said in an interview this week.
Macau is in the midst of a surge in new casino construction, with new billion-dollar resorts popping up that target casual gamblers instead of the high rollers that form the bulk of its gambling customers.
Bloomberg
