Gaming exchange traded fund investors are leaving the tables as Macau casinos face falling revenue growth and rising costs.
The Market Vectors Gaming ETF (NYSEArca: BJK) has declined 1.6% over the past month and is down 5.0% year-to-date.
Last Friday, Macau revealed that monthly gaming revenue dipped 3.6% in July year-over-year after a 3.7% drop in June, which marked the first year-over-year contraction since 2009, reports Josh Noble for the Financial Times. [Slowdown in Macau Cripples Gaming ETF]
Wynn Macau and Sands China revealed lower-than-anticipated second-quarter earnings, pointing to falling revenue from VIP customers and increased labor costs due to a shortage of workers. Additionally, labor costs could rise as employees threaten to strike for higher wages. BJK’s portfolio includes Wynn Macau 3.6% and Sands China 7.2%.
Year-to-date, SJM holdings has decreased 20%, Sands China fell 10%, Galaxy Entertainment dropped 7% and newly listed Macau Legend has plunged over 40%. In comparison, the benchmark Hang Seng China Enterprises index is up 3.5% this year. The Market Vectors Gaming ETF includes a 2.7% position in SJM, 7.2% in Sands China, 7.1% in Galaxy Entertainment and 0.7% in Macau Legend.
Phoebe Tse, gaming analyst at Barclays, argues that a number of factors have also contributed to Macau’s losing streak. For instance, gamblers stayed home to bet on the World Cup. Limited access to smaller smaller junket operators, who extend credit to gamblers, is also weighing on the market. Additionally, Macau hotel occupancy ratios topped 90% over weekends, which are pushing up prices and limiting availability.
Macau has also been cracking down on illegal transactions and imposed new regulatory changes, such as restricting the use of China UnionPay Co.’s debit cards at casinos. [Macau Illegal Transaction Crackdown Puts Gaming ETF in the Red]
“The anti-corruption campaign is a lot stronger than expected, and it’s having an impact everywhere,” Joohee An, portfolio manager at Mirae Asset, said in the article. “I don’t think the policy will disappear soon.”
Nevertheless, the sector could still maintain some level of strength. While the industry has seen revenue taper off, accumulated gross revenue is still expected to increase after rising 10.2% so far this year.
Market Vectors Gaming ETF
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Max Chen contributed to this article.