On the eve of the contentious U.S. presidential election, one gaming analyst said the outcome may provide divergent scenarios for Macau’s troubled gaming market, which has experienced a slow recovery from the coronavirus pandemic.
Macquarie Securities gaming analyst Edward Engel, who is based in Hong Kong, said that the race between President Donald Trump and former Vice President Joe Biden could alleviate concerns for the yet-to-be-understood relicensing process for gaming concessions. Those licenses expire in less than two years.
In the research note, Engel said he “did not intend to make a call on the U.S. election.” However, “we do believe Macau stocks would rally upon a Biden victory. In fact, the Trump overhang has kept many longer-term Macau investors on the sidelines alongside fears of unpredictable U.S.-China escalations.”
Engel provided investors Friday with drastically different circumstances for Macau. The re-election of Trump, he said, could worsen the frayed U.S.-China tensions created by the Republican’s “less predictable administration.”
A victory by Biden, the Democratic candidate, may not alleviate the contentious relationship between the superpowers, but the deterioration would occur in what Engel termed “a slower and more predictable manner.”
The U.S.-China trade disputes have been a drag on Macau, along with the ongoing COVID-19 pandemic, which has diminished visitation and gaming numbers.
In August, Wynn Resorts, in a filing with both the Hong Kong Stock Exchange and the U.S. Securities and Exchange Commission, warned that tensions between the U.S. and China have continued to escalate in 2020, resulting in “contentious punitive or retaliatory measures being imposed on businesses and individuals.”
It marked the first time a U.S.-based gaming company has openly discussed the pressures between the two nations.
Wynn, Las Vegas Sands, and MGM Resorts International are the U.S. companies with casino operations in Macau, which was considered the world’s largest gaming market in terms of revenues before the pandemic. Through the first 10 months of 2020, Macau gaming revenues are down 81.4% compared to 2019, when casinos there produced $36.6 billion in casino totals.
Engel said the removal of the “Trump overhang” could provide a boost to the investor sentiment toward Macau, “particularly for this beaten-down sector where an array of negatives are priced in.” He noted that Macau stocks jumped more than 30% in the 2019 fourth quarter as U.S.-China tensions eased.
“Alternatively, a Trump re-election would likely continue weighing on Macau sentiment,” Engel said.
The election results could also spur the Macau government to provide clarity for its 2022 concession relicensing process. Concessions – the term used in Macau for the license to operate a casino – expire in June 2022 for the three U.S. companies, as well as Melco, Galaxy Entertainment, and SJM.
“Time is running out for Macau officials to draft legislation amending the Special Administrative Region’s gaming law,” Engel said. The analyst, however, suggested the gaming concessions “will be extended one to five years beyond 2022, as is permitted by Macau gaming law.”
Engel predicted that a combination of a Biden election victory and a postponement of the 2022 concession renewals “could alleviate some Macau overhangs and improve risk sentiment for the stocks.”
The analyst that noted Las Vegas Sands Chairman and CEO Sheldon Adelson, who owns more than 58% of the company, “has close relations to the U.S. Republican Party.”
Adelson and his wife are considered megadonors to Republican candidates and GOP causes. In August, the Adelsons gave $75 million to a super PAC supporting Trump’s re-election. According to OpenSecrets.gov, Adelson and his wife have set a new record for donations from individuals in a single election cycle, giving $172.7 million to date.
Engel noted that Sands would also benefit from a Biden victory.
“With Biden maintaining a wide lead in the polls, some U.S. equities have started pricing a Biden victory, particularly new energy stocks,” Engel wrote. “Macau stocks, alternatively, continue to slide as investors factor a slow recovery, coupled with risks of a second COVID wave in China and worsening U.S.-China relations.”
Howard Stutz is the executive editor of CDC Gaming. He can be reached at hstutz@cdcgaming.com. Follow @howardstutz on Twitter.
