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China retail sales miss expectations, Casino stocks tumble amid concerns of China gambling regulations

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Yahoo Finance's Brian Sozzi and Julie Hyman break down the latest retail sales data from China, as well as gambling regulatory concerns in China sending U.S. Casino stocks lower.

Video Transcript

- But let's keep it on China for a minute here. Because not only do we have that sort of broad economic concern, but there is yet another industry this morning that's being affected by Chinese regulators. This time it is the casinos. We started to see some movement in these stocks yesterday. Macau, the Chinese gambling enclave, being affected here. The government says it aims to increase direct supervising of gambling companies to better monitor their operations.

Now, in contrast Brian, with some of the other industries that have been targeted by Chinese regulators as of late, casinos have long been on the list and we have really seen these companies at various times over the past decade, be affected as China has really cracked down on various aspects of the casino industry.

- Right, and it's not looking pretty, Julie. All these shares continue to be under pressure and they were hammered, they weren't hammered yesterday. And what looks to potentially might happen here, China calling for the potential removal of sub-- of the sub concession system. The appointment of government delegates to oversee gaming operators and the creation of an illegal deposit crime. That would be not good for the casino operators.

And I think investors, they were caught off guard by this, but they really shouldn't. And I encourage them, any company they own, go and read the annual report. And you dig into as I did, for Las Vegas Sands. In the key risk factors section of their annual report, they note that their sub concession agreement expires with their Macau operations on June 22, 2022. They go on to say, quote, "Unless our sub concession is extended on that date, the casinos and gaming related equipment will be automatically transferred to the Macau government."

To say that is a potential major risk to the business, is understated. Essentially, they would have to hand their operations over to a government in China. So there go your profits, there go your sales, and right now, there goes your stock price.

- Right. Although, the stocks are not necessarily trading as though that is the definite outcome, right? They're trading as though there are some risks here. And you have to wonder if that is sort of the Chinese government throwing its weight around, so to speak, at this point. We should point out that even though these companies are based in the US, they are heavily, heavily invested in Macau. Las Vegas Sands, for example, I believe gets just under half of its revenue from China and Macau specifically. So these are very important markets for these companies.

In the past, we've seen some crackdowns on high rollers at these casinos in China, which has been a very important revenue driver for these companies. So we'll see where this ends up.