LVS, WYNN, MLCO, MGM

U.S. listed casino stocks were jumping this morning after Macau’s government said it would allow tour groups from mainland China to resume trips to the resort island starting in early November.  were self-inflicted. Shares in Melco Resorts were up 32.6%, Las Vegas Sands by 13.4%, Wynn Resorts by 14.5% and MGM Resorts by 3.7%. Most U.S. gambling and resort companies have expanded in the Chinese territory over the past decade.

Macau, usually referred to as the “Las Vegas of the East”, has been affected by the COVID pandemic more than most other places in China. The territory is highly reliant upon the gambling industry and tourism for its economic prosperity. Recent Covid-zero policies adopted by the mainland government Chinese Communist Party under President Xi Jinping, have meant that travel between the provinces has been restricted.

Under the new guidance, tour groups from the neighboring province of Guangdong would be the first to resume trips to the peninsula. The policy would then extend to Shanghai and Zhejiang, before expanding to the rest of the mainland slowly. After peaking in July, there have been no new Covid-19 cases reported in Macau for over a month. Cases in Guangdong have also declined sharply from their peak, while Shanghai has also seen a sharp decline in new cases.

Travel websites which facilitate visits to Macau also saw their shares rise modestly. Macau has also become a key source of growth for many casino operators in the U.S. Las Vegas Sands, over two thirds of the profits generated comes from the Chinese territory. Not only is Macau the only territory where gambling is legal in China, it’s also one of the most profitable gambling destinations for casino operators globally.

Lower license fees contained wages, more advantageous odds on the gambling mix allow for higher operating margins for U.S. firms. Industry analysts also expect that the rebound in traffic at Macau would be swift much like what Las Vegas experienced after its Covid induced lockdowns ended. Shares in most casino operators such as Wynn are down are still down 40% to 50% from their pre-pandemic highs.

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