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Should Investors in the Gaming ETF Worry About Macau?

Sanghamitra Saha

Just as things started to fall in place for the casino industry with the mecca of casino gaming – Macau – seeing the strongest gaming revenue growth in almost three year in November, China again cracked down on illegal money transfer via Macau’s $30 billion gaming industry.

The Chinese government is imposing a 50% cut in withdrawals permissible to holders of China UnionPay bank ATM cards, effective Saturday. Investors should note that “nearly 50 percent of Chinese customers in Macau use UnionPay ATM withdrawals as one source of cash for gaming.’’

Such restrictions on currency usage in the world's largest gambling market is surely to hit the casino stocks. Investors should also note that gaming revenue in Macau is still in a fragile state having witnessed 26 months of declines before turning around from August on an annualized basis. November saw the fourth consecutive month of revenue growth (read: Should You Bet on Casino ETF with Decent Earnings?).

Since several big U.S. casino companies have huge exposure in Macau, there was a bloodbath in the casino industry on December 8 following the news. Las Vegas Sands Corp. LVS lost about 12.8%, Wynn Resorts, Limited WYNN plunged over 11% and MGM Resorts International MGM shed over 4.3%. To reflect the impact on global casino stocks, the casino gaming ETF –VanEck Vectors Gaming ETF BJK – retreated over 3.3%.

Inside the Crackdown

As per the source, the step to lower the daily withdrawal limit from 10,000 to 5,000 patacas  taken after the revelation that “as much as 10 billion patacas in China UnionPay ATM withdrawals were made in one month alone.”

The Chinese government intensified its measures to restrain the capital outflows as its yuan currency dropped “to over eight-year lows at the end of November and its foreign exchange reserves fell far more than expected in the month to $3.05 trillion, the lowest level in nearly six years,” as per Reuters.

Even previously, China enacted a clamp down on this territory. Check on illegal capital flight especially in VIP gaming from mainland China to Macau, firmer regulations over junket operators and phone betting, and monetary authority’s orders to jewelry shops and pawnshops on casino floors to eliminate UnionPay debit card terminals are not new to Macau (read: Will Troubles in Macau Spoil Gaming ETF Investments?).

However, some analysts view the latest move as “the first capital control measure that directly targets Macau and hence may be viewed as a meaningful signal.” In this light, investors should keep a close watch on casino ETF BJK which may see rough trading in the coming days.

BJK in Focus

The fund looks to track the MVIS Global Gaming Index and provides investors a direct exposure to the casino gaming market. The fund has so far attracted $20.6 million in assets and invested that in 41 holdings. The product is expensive as it charges 66 bps in fees per year.

All three abovementioned companies have created places in the top-10 holdings of the fund with a considerable share. Both companies – Sands China and Las Vegas Sands – have about 17% exposure in BJK. MGM Resorts International (7.58%) andMGM China holdings (about 1.57%) call for about 9.2% of the fund. Wynn Resorts Ltd (2.61%) and Wynn Macau (1.86%) also account for more than 4% of BJK (see all Consumer Discretionary ETFs here).

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