Japan is set to have its first casino resorts as its parliament has passed a law to legalize the same. This can possibly translate into huge profits and cash flows for casino players. This is good news for leading casino operators like MGM Resorts International (MGM - Free Report) , Las Vegas Sands Corp. (LVS - Free Report) and Wynn Resorts Ltd. (WYNN - Free Report) , who have been eyeing the Japanese market, and casino gaming ETF – VanEck Vectors Gaming ETF (BJK - Free Report) .
Japan is one of the largest untapped markets in the world. Currently, gambling is illegal in Japan with the exception of bets on boat, bicycle and horse races. Japan has the potential to become the second-largest market in Asia for gambling after Macau owing to its proximity to China (read: Should Investors in the Gaming ETF Worry about Macau?).
Japanese Prime Minister Shinzo Abe had aimed to legalize gambling in the country before 2020 as part of a plan to boost tourism before Tokyo Olympics. Casinos in the country will stimulate tourism and help boost the country's economy. According to CLSA Ltd, a Hong Kong-based brokerage firm, Japan's gambling resort market will generate about $40.0 billion a year from 2025 onward.
However, regulations regarding operation of the casinos are not yet in place and therefore casinos will take a few years to come up. Meanwhile, Japan will face stiff competition from Singapore, Macau, the Philippines and South Korea, which currently attract majority of the gamblers in Asia. Japanese casinos will have to work on differentiating themselves from others.
The casino industry hit the headlines recently owing to restrictions on currency usage in China. China came down hard on illegal money transfer via Macau’s $30 billion gaming industry and imposed a 50% cut in withdrawals permissible to holders of China UnionPay bank ATM cards, effective Saturday. Investors should note that nearly 50% of Chinese customers in Macau make UnionPay ATM withdrawals to source cash for gaming (read: Should You Bet on Casino ETF with Decent Earnings?).
Meanwhile, a tough operating environment in Macau weighed on casino stocks in 2015 and for the most part of 2016. Only recently, the mecca of casino gaming – Macau – slowly started returning to life as gaming revenues in the region grew on an annual basis in November. This marked four consecutive months of gains, following an extended slump of over two years.
Despite the challenges, investors buying on this Japan legislation induced optimism can focus on the gaming ETF targeting the casino industry (see all Consumer Discretionary ETFs here).
BJK in Focus
The fund looks to track the MVIS Global Gaming Index and provides investors a direct exposure to the casino gaming market. The product has so far been overlooked by investors as is evident from its paltry volume of about 6,000 shares daily.
The fund has so far attracted $19.8 million in assets and invested that in 41 holdings. The product is expensive as it charges 66 bps in fees per year.
All three abovementioned companies have created places in the top 10 holdings of the fund with a considerable share (read: A Spread of Top-Ranked ETFs for Thanksgiving and After).
The fund is concentrated in the top 10 holdings at about 57.4% of the total assets. The U.S. accounts for 38.5% of the portfolio, while Australia and China round off the next two spots with double-digit weight each. BJK has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.
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