Inside Asian Gaming

7 12 Still rosy, but some wary Analysts also seem fairly relaxed about the long-term prospects for gaming and tourism in Macau. “We will be interested to see how this plays out in the near-term, though we expect any drop in visitation to be offset by the in- crease in non-gaming amenities and hotel rooms with the opening of (LVS’) Venetian in late August,” wrote Morgan Stanley analyst Celeste Mellet Brown in a stock note. The potential revenues and profits from gaming in Asia are huge if markets are liber- alised further. A recent report from financial consultants PricewaterhouseCoopers esti- mates revenues from legal gambling in Asia will be growing by 14% a year by 2010. With all the publicity surrounding the in- dustry though, it’s easy to forget that a signif- icant section of the financial community still regards gaming stocks as exotic specimens. As one fund manager explained to Inside Asian Gaming : “The most attractive Macau play is Las Vegas Sands Corp. It’s also diver- sified its Asia risk with a resort in Singapore. The trouble is, there isn’t a huge amount of liquidity in the company. Around 70% of the stock is held by the chairman and that keeps the stock price on the high side. I wish him luck and I’m sure he’ll make a lot of money. But there are so many companies around the region in less volatile sectors that are due a re-rating, that frankly there’s no need for us to seek heavy exposure in Macau. Moving upmarket Sheldon Adelson, the LVS chairman referred to by the fund manager, is making the big- gest play of any foreign investor in Macau with an investment of around US$20 billion. He is fond of chiding the media for their ten- dency to focus on Macau’s potential down side. He points out that a central part of his proposition is to move the Macau visitor profile upmarket with conventions at his Ve- netian Macau resort, due to open on August 28. He believes this will also attract Chinese visitors from beyond the Guangdong day- trip market. He also stresses that the free market ge- nie is out of the bottle in China and cannot be put back in. In a foretelling of the travel restriction difficulties, he said on a recent visit: “It’s per- fectly possible that next week, next month or next year there could be some event that af- fects the market. But you need to look at the general trend, not the individual event, and the trend is up.” He is undoubtedly right.But thenMr Adel- son is playing mainly with his own money so can afford to be a little more relaxed than his competitors. He is also hedging his bets by diversifying his Asian investments, with a non-gaming resort at nearby Hengqin Island, and a casino resort in Singapore aimed at the ethnic Chinese market in Southeast Asia. Steve Wynn hasn’t so far diversified his Asian play (though not for want of trying in Singapore). He does though appear to be heeding the lesson of the Guangdong travel restrictions by reportedly reviewing the tim- ing of future investments in Macau. “We are wary of the future effect of newly restrictive visa requirements,”MrWynn,chair- man and chief executive of Wynn Resorts, told the media recently. He said there were also concerns about potential oversupply of capacity. “Management recognises and will con- tinue to monitor the effect on our business of the dramatic expansion in supply repre- sented by the openings of the Venetian and the MGM Grand Paradise in November,” he explained. However, following those warnings, Mr Wynn announced a US$1.2 billion share buy- back of Wynn Resorts stock, suggesting man- agement has cause for optimism. Devil in the details It’s not surprising that no official explana- tion has been given for Guangdong’s travel restrictions. In the People’s Republic, policy changes are often signalled obliquely rather than announced in press releases. China is a country where something as mundane as the list of mourners at a senior party mem- ber’s funeral provides a wealth of informa- tion for anyone who takes the trouble to look for it. It can give an instant snapshot guide to who is in, who is out, or who is just marking time among the leadership. In the old Soviet Union, such detailed poring over apparently insignificant details used to be called ‘Kremlinology’. The term tends to ap- ply wherever in the world the political sys- tem and political accountability is opaque rather than transparent Anyone who has seen the huge changes in China over the last two decades is sure though that market economics is here to stay. The issue for investors in Macau and elsewhere is howmuch‘tweaking’themarket system will have to go through to ensure the central authorities feel they are still in control of the modernisation process. “The issue for investors in Ma- cau and elsewhere is how much ‘tweaking’ the market system will have to go through to ensure the central authorities feel they are still in control of the modernisation process.”