Escalating trade hostilities between the United States and China are rattling the financial markets tied to Macau’s gaming industry, even as the sector’s fundamentals remain resilient. Financial research firm CreditSights, a division of the Fitch Group, has flagged heightened volatility across Macau gaming bonds in the wake of President Donald Trump’s latest tariff hike on Chinese imports, though the direct impact on core gaming revenues is expected to be limited for now.

The move, which raised tariffs on Chinese goods to 145% as of April 10, has already triggered a notable spike in bond spreads, affecting both investment-grade and high-yield debt issued by key operators. Sands China, for instance, saw its investment-grade spreads widen by 19 to 25 basis points between April 2 and 4. In the days that followed, spreads ballooned further—by 76 to 137 basis points for Sands and by 110 to 258 basis points for non-2025 maturing high-yield bonds.

While the majority of Macau’s tourism base remains mainland Chinese—73% as of February 2025—meaning the sector is largely insulated from the direct effects of US tariffs, CreditSights warns that the broader geopolitical climate could dampen investor sentiment. The firm notes that recent headlines surrounding Trump’s so-called “Liberation Day” have already weighed on the market, contributing to the bond spread volatility.

“We also caution that the Macau bonds are likely to experience more bouts of tariff headline-driven volatility in the near-term, particularly those pertaining to China,” wrote CreditSights analysts Nicholas Chen and David Bussey, according to Inside Asian Gaming.

Sector Resilience Amid Global Slowdown

Despite these headwinds, CreditSights remains largely positive on the long-term prospects for Macau’s casino operators. The firm maintains a 2025 GDP growth forecast of 4.7% for China—above the broader market consensus of 4.5%—though it does acknowledge that downside risks to this outlook have increased due to global economic softness.

Operationally, the firm expects the Macau gaming sector to continue its post-pandemic recovery with steady gross gaming revenue (GGR) and a lift from non-gaming amenities scheduled to launch in 2025. Among these, Sands China’s Londoner renovations, MGM Macau’s updated gaming areas, and the return of Melco’s House of Dancing Water are poised to drive traffic and revenue.

From a profitability standpoint, EBITDA performance is expected to remain steady or improve slightly across key players such as Sands China, MGM China, and Melco, with margin expansion potentially occurring later in the year. However, a recent Citigroup investment memo projects that combined industry EBITDA for the first quarter of 2025 may decline 6% year-over-year to $1.92 billion, primarily due to rising operational costs and an unfavorable hold rate for some operators. Sands China is projected to experience the sharpest drop, with EBITDA expected to fall 13% to $530 million.

Margin Pressures Persist Despite Revenue Gains

Macau’s six major casino operators ended FY2024 with healthy top-line growth across the board, but EBITDA expansion failed to keep pace, resulting in widespread margin compression. MGM China stood out as the only operator to surpass its 2019 pre-COVID performance in both revenue and EBITDA.

In the final quarter of 2024, most operators posted higher revenues year-over-year, though Sands China lagged due to the ongoing Phase II works at The Londoner. All operators saw EBITDA decline in Q4, pressured by wage increases and continued property enhancements.

CreditSights anticipates that 2025 will bring more modest topline improvements compared to the rapid recovery in 2023. While Sands China might benefit from completed renovations, MGM China is projected to remain stable, and Melco could post low- to mid-single-digit EBITDA growth. Conversely, Wynn Macau may experience a marginal drop in margins as it continues prioritizing profitability over growth.

Financial Health and Market Outlook

On the financial side, CreditSights expects operators to maintain positive free cash flow positions in 2025. That said, elevated capital expenditures will likely dampen FCF for most firms, with the exception of Sands China, which is set to benefit from lower projected capex.

“Leverage and interest covers for most of the Macau credits are expected to improve on the back of better expected EBITDA coupled with total debt for most trending lower in FY25,” Chen and Bussey added.

While market volatility linked to geopolitics may continue to influence bond pricing, the underlying performance of Macau’s casino industry appears robust enough to weather the turbulence—at least for now. Whether investor confidence will hold in the face of persistent trade tensions remains to be seen.