Macau Stocks Due for Pullback Following Scintillating Run

Posted on: December 15, 2022, 09:49h. 

Last updated on: December 16, 2022, 10:40h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Macau gaming stocks, including Sands China and Wynn Macau, look primed for a retreat following a blistering pace set amid a recent spate of good news.

Macau stocks
The Venetian Macau. Macau stocks, including Sands China, look overbought. (Image: Luxury Lifestyle Magazine)

A Bloomberg index of the six concessionaires surged 60% over the past three weeks, or six times the returns of Hong Kong’s Hang Seng Index — the listing venue for the names. Based on relative strength — a technical indicator some traders use for buy and sell signals — Macau stocks are overbought. That implies short-term traders could take profits in the equities, causing declines.

The casino gauge’s 14-day relative strength index remains above the 70-threshold that some traders see as a sign of overheating, even after coming off the 84 level — the highest since 2013 —  it hit earlier this month,” reports Bloomberg.

The six Macau Macau operators are Galaxy Entertainment, Melco Resorts & Entertainment (NASDAQ: MLCO), MGM China, Sands China, SJM Holdings, and Wynn Macau.

What Fueled Rally in Macau Stocks

Since the start of the coronavirus pandemic in early 2020, Macau stocks moved mostly in fits and starts, subjecting investors to significantly more downside than reasons to cheer.

In what feels like the first time in an eternity, the news flow out of the Asia-Pacific casino center is turning positive. Macau authorities retendered gaming permits more rapidly than expected, sticking with the six established concessionaires. That eliminated the specter of Genting Malaysia entering the market at a rival’s expense.

Additionally, China is finally showing a willingness to ease its zero-COVID policy, which long hindered operators’ ability to bounce back.

Another factor contributing to the aforementioned rally for Macau stocks is that the new capital requirements and spending mandates set forth in the special administrative region’s (SAR) updated gaming laws are palatable to concessionaires and not overly taxing on fragile balance sheets.

Investors’ enthusiasm for the names is palpable in the US, as Wynn Macau parent Wynn Resorts (NASDAQ: WYNN) is higher by almost 30% in the current quarter, while rival Las Vegas Sands (NYSE: LVS) is up roughly 26% since the start of October. Those companies combine to run seven integrated resorts in the SAR.

Sands is up 29.25% year-to-date, good for not only one of the best showings among gaming equities, but also well ahead of the double-digit losses sported by broader domestic equity gauges.

Upside Still Possible, Risks Remain

Shares of all six Macau gaming stocks remain well-off pre-pandemic highs, implying there’s still room for upside. While that may ultimately prove to be the case, risks linger.

It’s likely to be 2024 before the SAR’s gaming industry begins resembling anything close to its pre-coronavirus self. In the meantime, operators need to find avenues for trimming debt burdens that ballooned during the pandemic.

“The sector is much more levered, and it could take 2-3 years post-Covid to repair balance sheets,” said Morgan Stanley analysts in a November note, according to Bloomberg.