MSCI Index Boots SJM, Wynn Macau from Hong Kong Benchmark

Posted on: November 15, 2021, 10:19h. 

Last updated on: November 15, 2021, 05:22h.

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

Macau casino operators SJM Holdings and Wynn Macau are leaving the MSCI Hong Kong Index at the end of November.

Macau MSCI
Wynn Macau, seen above, is one of the gaming stocks leaving the MSCI Hong Kong Index. SJM Holdings is the other. (Image: Seeking Alpha)

The index provider made the announcement as part of its recently completed semi-annual index review. SJM and Wynn Macau are the only names leaving the widely followed Hong Kong benchmark, and no new stocks are being added.

The MSCI Hong Kong Index is designed to measure the performance of the large and mid cap segments of the Hong Kong market. With 37 constituents, the index covers approximately 85% of the free-float adjusted market capitalization of the Hong Kong equity universe,” according to the index provider.

MSCI did not give a reason for the removal of either Grand Lisboa operator SJM or Wynn Macau.

More Bad News for Macau Stocks

News of MSCI arrives not long after Macau equities were walloped by fears local authorities are looking to ratchet up regulatory oversight of the gaming industry. MSCI is one of the world’s largest providers of benchmarks for use by issuers of exchange traded funds (ETFs) and index funds.

In late September, shares of all six Macau concessionaires plunged, wiping out about $20 billion in market capitalization in a single day. That’s after local officials launched a consultation period that includes proposals. Those include increased government equity ownership, restrictions on how operators spend capital, including dividend payments, and the possibility of upfront payments required to retain licenses.

Shares of Macau operators have since steadied. But in terms of 2021 equity performance, analysts and investors are displaying overt preferences for domestically focused gaming companies with either deep Las Vegas exposure, extensive regional casino portfolios, or both.

What Index Removal Means for SJM, Wynn Macau

While SJM and Wynn Macau could still be valid long-term ideas, removal from the MSCI Hong Kong Index presents near-term headwinds to those stocks. That’s because index funds and active managers that benchmark to that gauge will be forced to sell the pair of casino equities due to the MSCI decision.

As of Nov. 12, SJM and Wynn Macau combined for 0.77 percent of the index. The largest weight assigned to any of the Macau concessionaires in the gauge is 2.6 percent to Galaxy Entertainment. When SJM and Wynn Macau depart the index, just three gaming names will remain — Galaxy, Sands China, and Melco Resorts & Entertainment (NASDAQ:MLCO).

MGM China, the operator of two Macau casinos, left the MSCI Hong Kong Index in November 2019. At that time, the gaming name commanded the second-smallest weight in the gauge.

As for Wynn Resorts (NASDAQ:WYNN), the US-based parent of the Macau entity, that stock could be added to the Nasdaq-100 Index when that benchmark rebalances in December.