Macau’s casino industry went through a major slump resulting in 26 consecutive months of gross gaming revenue (GGR) decline which ended in August 2016. The industry since then has shown signs of recovery as GGR has increased with each passing month but major casino operators are now concerned that the industry could once again experience a slide due to the scrutiny being imposed by China on capital outflows.

The Chinese government announced earlier this week a number of measures to limit the foreign exchange purchases which will limit the amount of spending in Macau’s casinos. Sands China Ltd (HKG: 1928) and Galaxy Entertainment Group Ltd (HKG: 0027) witnessed more than a 3 percent decline in intraday trading on the Hong Kong stock exchange.

Casino operators also witnessed a decline in share prices in December when the South China Morning Post stated that China intended to reduce the daily withdrawal limits for UnionPay ATM transactions in the city. When the government released an official announcement, those restrictions were not as stringent as investors through it would be. The fluctuation of casino share prices shows how nervous traders are with regards to China’s measures to control capital outflows and Macau’s casinos.

In a statement, Sonija Li, an analyst at Kim Eng Securities (Hong Kong) Ltd said “Measures to tighten controls in foreign exchange purchases are fueling concerns that China may roll out further restrictions on UnionPay overseas purchases. That is negative for casino operators.”

On December 31, the State Administration of Foreign Exchange announced that it was looking to close loopholes that were being used to illegally channel funds into overseas properties and for money laundering activities. The regulator has not changed the $50,000 ceiling for foreign currencies which citizens are allowed to purchase in a calendar year but has now made it a requirement for citizens to provide a detailed account as to why they need the funds and how they intend to use it. They will also have to confirm that they will not use the cash to make investments overseas.

The People’s Bank of China, which is the central bank in the country, announced on December 30 that it intends to impose stricter rules for banks to report all cross-border customer transactions beginning July 1. This is part of the central bank’s efforts to plug loopholes and prevent terrorism financing and money laundering.

Galaxy Entertainment and Sands China witnessed a steady decline in share prices during 2014 and 2015 but share prices rebounded in 2016 as Macau’s casino industry started to recover. Gaming analyst Jamie Soo from Daiwa Capital Markets Hong Kong Ltd has cautioned against having high expectations of GGR in 2017 stating that it is difficult to be optimistic about the performance of Macau’s casinos considering China’s capital outflow policy measures and stringent incremental policies.

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