Late last month, Macau casino stocks experienced a significant surge after the People’s Bank of China (PBOC) cut interest rates and Beijing announced a new round of stimulus measures aimed at specific segments of the Chinese population. This rally in gaming equities was a beacon of optimism for investors eyeing the recovery of the gaming mecca’s economy.
However, the excitement was short-lived. Earlier this week, the same gaming equities, along with other Chinese stocks, faced a setback. The National Development and Reform Commission (NDRC) failed to deliver anticipated news about fresh stimulus, leaving market participants disappointed. Despite this, some analysts maintain a positive outlook, suggesting it’s only a matter of time before Beijing unveils more financial aid, which could eventually boost Macau casino stocks.
Analysts from Nomura, including Ting Lu, Jing Wang, and Harrington Zhang, highlighted in a recent report that it is not within the NDRC’s jurisdiction to announce such stimulus plans. They argued that the subsequent sell-off of Chinese stocks could be seen as a healthy market correction. In their view, avoiding a stock frenzy and potential crash is essential for a successful revival of China’s economy.
The analysts noted that China’s Finance Ministry is scheduled to hold a press event on October 12, where more economic incentives might be disclosed.
The initial batch of stimulus measures announced by Beijing had already propelled Macau gaming equities. However, there are additional reasons why this sector could benefit from further incentives. Much of the anticipated fiscal stimulus is expected to address the fiscal deficits faced by local governments. The Nomura analysts emphasized that the substance of the stimulus is more crucial than its size, as Beijing grapples with the fallout from the housing crisis and seeks to overhaul its fiscal system. With local governments potentially unable to rely on massive revenue from land sales, the nature of the stimulus becomes even more pertinent.
In the broader context of the Macau gaming industry and the Chinese economy, many market observers believe that Beijing needs to do more in terms of distributing cash directly to citizens. The initial payouts should be seen as just the beginning. Additional stimulus could arrive at a strategic time for Macau stocks, including Wynn Macau’s parent company, Wynn Resorts. Currently, these stocks are deeply discounted, with CFRA analyst Zachary Warring noting that WYNN’s valuation appears attractive. Trading below its historical averages at approximately 8.5 times forward EBITDA estimates, the stock has minimized downside risks in the event of global economic slowdown.
If Beijing follows up on its recent incentive programs, the next round of stimulus is expected to be substantial. Nomura estimates it could reach as high as $283 billion or possibly more. The analysts suggest that the actual stimulus might surpass this figure, as Beijing may leverage funding from the People’s Bank of China and the three policy banks to address the debt overhang, especially concerning the delayed delivery of pre-sold homes in the property sector.
Should these funds be directed into the hands of China’s middle- and upper-middle-class citizens, it could significantly benefit Macau casino stocks, presenting a potential boon for the industry.