Asia Tea Time - Cup 66 ☕

This week I talk Macau’s casino stocks taking another regulatory beating and why using credit cards always beats using debit cards. 

Macro in Asia

Macau casino stocks fall on proposed crackdown of unlicensed currency traders

Casino stocks in Macau saw big falls on Monday (12 August) as policymakers in the Chinese city’s parliament said it was looking to criminalise unauthorised currency-changing services.

A broader crackdown on the cross-border activity of cross-border currency traders (aka loan sharks) has seen the Bloomberg Intelligence gauge of six major Macau casino stocks decline over 7% in the last month.

Why it’s happening

• China does not like capital flowing out of its borders without it being aware. Like a leaky dam, money is coming out of China and one of the favourite destinations for these illicit flows is the only place in China where gambling is legal – Macau.

• Beijing had already called for a crackdown on illegal money exchange businesses in Macau back in early June, with Macau’s parliament finally getting the hint.

• Macau’s gaming revenue is seeing a sustained rebound and hit a post-pandemic high of MOP 20.19 billion (US$2.53 billion) in May 2024. 

• However, since talk of the crackdown has leaked, the revenue recovery has stalled out and Macau’s July 2024 gaming revenue grew only 12% year-on-year to MOP 18.6 billion – down from its May peak. 

Why it matters

• China’s economy is seriously slowing and policymakers in Beijing don’t want more capital leaving China via illegal channels.

• Macau’s casino stocks (and its investors) were hoping for some respite given recovering gross gaming revenue (GGR) numbers but share prices have moved either sideways or down since the Covid pandemic.

What’s next?

• The monthly GGR numbers coming out of Macau are a useful gauge of what’s happening month to month in the gambling enclave.

Tim’s Take 

As far as destroyers of shareholder capital go, Macau casino stocks are right up there with the best of them.

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The latest crackdown by China’s government – because let’s be real, anything coming out of Macau’s parliament must have Beijing’s fingerprints on it – has Macau’s casino companies probably thinking they can’t catch a break. The Chinese government holds all the chips.

And with money laundering and capital outflows of China still rampant, they’re probably justified feeling that. 

Macau has always been a popular destination for those wanting to get money out of China given the underground banks and loan sharks that exchange Chinese yuan for Hong Kong dollars for individuals wanting to get the Chinese currency out of the Mainland.

This intense focus from Beijing on restricting capital outflows has been compounded by a broader rejection of vice activities, like gambling, that has been brought about by President Xi Jinping.

A focus on rejecting excess and embracing austerity doesn’t really match up with going to Macau and dropping thousands of dollars on Baccarat.

As an example of how tough Macau’s casino companies have had it, the share prices of Sands China (HKEX: 1928) and Galaxy Entertainment Group (HKEX: 27) are down 58% and 32%, respectively, over the past five years.

For investors wanting to get into China stocks, or have a level of exposure at the individual stock level, it’s becoming extremely clear that Macau casino stocks are not the ones to bet on.

Tim's money tip of the week

The film Catch Me If You Can – starring Leonardo Di Caprio and Tom Hanks – was a popular film based on the real-life con-artist named Frank Abagnale Jr. 

While the film was set nearly 50 years ago, many of the lessons of fraud and identity theft are still relevant today. Indeed, Frank is a reformed felon who himself has spoken about what to do (and not do).

One of the biggest things he has said in recent years is that he would “never, ever use a debit card”. Why is that the case?

Mainly because you’re exposing your money and your bank account to undue risk. If someone could (somehow) gain access to your account, your savings could be wiped out.

However, with a credit card, you’re protected from fraud by the issuing bank and – even better – you’re not putting your bank account details into the public realm. That limits your liability and helps you protect your cold, hard cash.

There’s also another benefit to credit cards that we don’t think about – rewards. Granted you pay your credit card bill in full and on time, you are essentially earning free miles or cashback on credit card transactions.

When you make a debit card transaction, while you may get a feeling of “I’m spending what I actually have”, you’re also exposing your account to heightened risks in a time of increased hacks and cybersecurity breaches.

With the double benefit of limited liability and rewards (like air miles or cashback), spending on a credit card is clearly preferable to debit card spending.

Follow me on TikTok at @timtalksmoneysg for more Personal Finance tips and insights.