For the world’s top casino operators, the opportunity to stake a claim in Macau was simply too large to ignore.
Long-known as the "Monte Carlo of the Orient," Macau was just a short boat ride away from the fast-growing economy in mainland China and represented untold riches for the firms willing to build expensive new gambling meccas.
For a while it looked like a brilliant move. High-spenders from China, who had developed a reputation for conspicuous consumption, arrived in Macau in droves, sending industry income—and share prices—soaring.
From the start of 2009 until the end of 2013, the VanEck Vectors Gaming ETF (BJK) surged 241 percent. The fund owns a basket of the world’s top casino firms and their key suppliers. We’re not just talking about the marquee names in Las Vegas. This fund’s assets are spread across the globe, including more than half in Asia.
But the Macau miracle quickly evaporated as Chinese regulators began to see conspicuous consumption as a vice, especially amid concerns of growing economic inequality in China. A sharp drop in Macau’s revenue base pushed the VanEck fund down 35 percent in the two years ended 2015.
Shares have rebounded nearly 30 percent since the start of 2016, and the stars are now aligned for a sustained recovery thanks to a host of factors.
Macau Loosens Up
By last July, Macau had posted 26 straight year-over-year monthly revenue declines. Yet as the crackdown on conspicuous consumption by Chinese nationals wound down, fourth quarter revenue managed to post a 10 percent yearly gain. Fast-forward to April 2017, and Macau’s gaming-and-hotel related revenue soared 16.3 percent according to the Macau Gaming and Coordination Bureau.
The VanEck fund has around one-fifth of its assets invested directly in Macau casino operators, with added exposure through global firms that have Macanese subsidiaries.
Many Chinese gamblers are now headed to places like The Philippines, South Korea, Malaysia, and Vietnam. So strictly focusing on the health of Macau may miss the bigger trends in play. A new complex called City of Dreams in Manila, for example, has helped shares of Melco Crown Philippines Resorts Corp. to more than double year-to-date, according to Bloomberg News.