China Slowdown Represents an Opportunity for Gambling Stocks

China Slowdown Represents an Opportunity for Gambling Stocks

After months of back and forth, there is no question there is a trade war between China and the United States. This is dangerous for both countries. The United States, so far, has not seen many side effects affecting its roaring economy. It is not the same for China, however. The Chinese economy, which was once more robust than the economy of the United States, has now flattened. The decline in Chinese equities means opportunity. Some of these equities involve gambling stocks from Macau and Hong Kong. However, the decline only means opportunity if the investors are ready to take a risk.

China Has a Gaming Problem

China Has a Gaming ProblemChina only has one area completely under its control where it allows gaming – Macau. Macau is the biggest and most lucrative gambling market in the world. It does three times the revenue of Las Vegas, its next closest competitor. However, over the last two or three years, Macau has not been as lucrative as it once was. There are several reasons for this. First, the Chinese government declared a crackdown on money laundering, graft, and corruption at the casinos in Macau. The government declared war on cozy relationships between gamers and casinos. As a result, high rollers, who account for 60 percent of the revenue in Macau, have stayed away. The VIP gamers typically do not like publicity and want to gamble in private.

Second, the government has stated that officials can no longer entertain business clients at the casinos in Macau. The government thinks it smacks of impropriety. All of this has led to a stagnation of casino revenue.

The Effect on Gaming Stocks in China

The government crackdown and resulting defection of high rollers have had a few consequences. First, Macau’s economy depends heavily on gaming. Overwhelmingly, gambling revenue, estimated to be about $40 billion each year, prop up the economy in Macau. The stock market has taken notice. Hong Kong’s Hang Seng Index has fallen nearly 20 percent in the last four months. Investors worry about the trade war with the United States and the economic problems it would cause for China. Many Chinese investors know while the United States has other trading partners, China’s largest trading partner is the United States. And, because of that, they are not as flexible as the United States with regard to trade.

Gaming Stocks Taking a Hit, But There Is a Bright Side

Several stocks related to gaming in China have fallen hard. Galaxy Entertainment Group has fallen 25 percent just since the beginning of the month. Both Sands China and Wynn Macau have fallen more than 13 percent this month. Perhaps, the reason is both of these companies own multiple casinos in Macau. MGM Resorts has declined 10 percent. Again, perhaps, because it owns two Macau casinos.

While these gambling stocks have experienced a significant decline, there’s still some opportunity, according to financial experts. They argue that it is highly unlikely that China would allow such a profitable business to disappear through regulation. In addition, investors think this is the time to buy gaming stocks. The market will see explosive growth because of the rise in mobile gaming and online gaming. People who want to gamble a bit can invest in more diversified gaming stocks. For example, many companies have casinos in other areas of the world besides Macau. Caesars Entertainment, Sands, and MGM Entertainment all have roots in the United States. Investors may also want to look at China’s other Asian investments in gaming, and buy stocks in them. There is definitely money in gambling stocks if investors feel like taking a chance.

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Thomas McCoy was born in Bethesda, Maryland and studied finance at the Kogod School of Business at American University in Washington D.C. before heading to New York and a job as a forex trader on Wall Street. Successful enough to launch his own, online forex trading platform, Thomas has long had a keen interest in the places where the worlds of finance and technology meet. As a prolific blogger, Thomas considers himself an expert on cryptocurrencies, casino asset restructuring, and emerging technologies set to change the way people do business.