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Casino Stocks Plummet After Macau Declares Shutdown

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Investor sentiment is often swayed by breaking news and headlines, keeping the stock market in its thrall. Yesterday, shares of Macau, which has operations in China, declined sharply following the news of a shutdown to curb the rising number of COVID-19 cases.

Macau residents are not allowed to leave their homes, barring valid reasons. On Jul 10, 2022, the city reported 59 cases. The latest outbreak, which started on Jun 18, has infected 1,526 people. This is the first shutdown since an unprecedented 15-day closure in February 2020.

Macau, the world’s largest gambling hub, will be impacted by this shutdown. Following the news, shares of MGM Resorts International (MGM - Free Report) , Melco Resorts & Entertainment Limited (MLCO - Free Report) , Wynn Resorts, Limited (WYNN - Free Report) and Las Vegas Sands Corp. (LVS - Free Report) , which have operations in Macau, declined 3.2%, 9.6%, 6.51% and 6.3%, respectively. In the past year, the Zacks Gaming industry has decreased 53.7% compared with the S&P 500’s decline of 12.4%.

Zacks Investment Research
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Macau Gaming Revenues Likely to Decline

Citigroup has cut the region’s July gaming revenues to 400 million patacas ($49 million), considering near-zero revenues for the rest of the month. This month is likely to mark the lowest monthly revenues the industry has witnessed amid the pandemic.

In the first six months of 2022, Gross gaming revenue (GGR) declined to MOP$26.3 billion, from MOP$49 billion in the first six months of 2021. Consequently, lower footfall at the local casinos led to a persistent decline in gaming revenues. The slowdown in China, tighter visa policies, political unrest and the coronavirus pandemic, have aggravated the woes.

In recent years, Macau has heightened scrutiny of casinos to clamp down on corruption in China. This compelled Macau officials to impose restrictions on high rollers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

The government has also put a withdrawal limit on each ATM transaction to stem the recent increase in overseas ATM withdrawals. While these policies might be helpful in the long run, they are likely to restrict gaming revenues in the near term.

Wrapping Up

Given the uncertainties surrounding the crisis, the casino operators expect the pandemic to keep hurting operations for some time. Cash burn remains a major concern for the industry. Even after the reopening of Macau, the market would continue to operate below the pre-pandemic level due to travel restrictions.