Wynn Macau and casino operators decline on China rates concerns

Wynn Macau tumbled 5.7 %, the most since October 28. Billionaire Stanley Ho’s SJM Holdings Ltd. slid 2.2 % after earlier falling the most in almost two months. The Hang Seng Index fell 0.65 %, capping its worst week since November.

Chinese economic growth in the fourth quarter accelerated to 10.7 %, the fastest pace since 2007, stoking speculation the central bank will start raising its benchmark interest rate and tighten restrictions on the nation’s lenders to curb inflation. That offset a CLSA Ltd. forecast that Macau, the world’s biggest gambling hub, may see wagering revenue expand by a record 50 % in January.

“After the credit crunch, investors are more acutely sensitive to monetary conditions in China and their impact on Macau’s VIP segment, which is largely driven by liquidity and availability of credit on the mainland,” Gary Pinge, a Hong Kong-based analyst at Macquarie Securities, said by phone.

High rollers who play high-stakes games in so-called VIP rooms contributed 66.3 % of Macau’s us$ 15 billion in gambling revenue last year. China on January 12 unexpectedly raised the proportion of deposits that banks must set aside as reserves to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles.

“A significant contraction in liquidity” may hurt casino operators’ revenue, CLSA analyst Aaron Fischer said in a note to clients. “Liquidity goes into Macau’s VIP market just like it goes into the equity and property markets.”

Macau gambling revenue surged 50 % in the fourth quarter to us$ 4.4 billion, according to the city government, which doesn’t officially release monthly figures. Las Vegas Sands Corp., operator of the Venetian casinos, made 74 % of its third-quarter sales in Macau.

Galaxy Entertainment Group Ltd., part-owned by Permira Advisers LLP, fell 1.85 % to us$ 0.39 after earlier retreating as much as 14 percent. Melco International Development Ltd., which runs a Macau casino venture with Australia’s richest man, James Packer, declined 1.6 % to us$ 0.38. Sands China Ltd., a unit of Las Vegas Sands, gained 0.9 % to us$ 1,33, after earlier dropping as much as 2.8 %. SJM shares closed at us$ 0.50.

“Casino stocks are highly rated and tend to react in a more volatile way,” Billy Ng, a Hong-Kong based analyst at JPMorgan Chase & Co., said by phone. Ng has an “overweight” rating on Galaxy.

An increase in reserve requirements “is an indirect precursor to re-tightening of Macau visa restrictions,” Bill Lerner, a Las Vegas-based analyst at Union Gaming Group LLC, said in a note. Residents of mainland China need visas to go to Macau, the only place in the country where casinos are legal.

Gambling revenue in the only Chinese city where casinos are legal grew 67 % in the first 20 days of the month, Fischer said, citing unidentified people. “The growth rate will slow down over the last 10 days but we are still looking at monthly growth of around 50 %.”

Casinos contributed 99 % to Macau’s gambling revenue, with the rest coming from greyhound racing, horse racing and lotteries.