Trust a bureaucrat to make a downturn warning sound like good news.
When Manuel Joaquim das Neves, director of Macau’s gaming regulator, the DICJ, told the Macau Daily Times yesterday that the local casino industry should end 2011 with a year on year revenue growth of “above 35%” what he really seemed to be saying was ‘expect a slow down at the end of the year’. That’s because in the first half of 2011 the market has been growing at the rate of 43% year-on-year in 1Q and 46% in 2Q.
Nor can seasonality alone account for Mr Neves’ hint of a possible slowdown in growth in the latter part of 2011. It used to be said that the fourth quarter of a year tended to be slower in Macau than other quarters. That was on the basis that in the final quarter many Chinese people tend to pay off debts and save even harder in anticipation of the Chinese New Year holidays that generally occur between late January and early February depending on the lunar calendar. Such downward trending has not been the case in the last two years. In 2009 the quarter on quarter growth from 3Q to 4Q was 14%. In 2010 it was 16%. In 4Q 2010 the year-on-year growth was 52%. In 4Q 2009 the year-on-year GGR growth was 50%, although 2008 is not very reliable as a statistical starting point as it was negatively affected by the international credit crisis.
Mr Neves’ phrase describing likely market performance in the latter part of 2011—“above 35%”—is of course typically cautious bureaucratspeak. It could mean anything from 36% to 100%. But public servants in the more orderly and organised investment markets tend to choose their words carefully. By choosing 35% as his base point, what Mr Neves really seems to be saying is “don’t be surprised if growth slows”.
We can’t assume at this point that Mr Neves is party to some information that he’s unable to share with us—such as say a change in visa policy on the part of the government on the Chinese mainland. In any case talk to anyone in the know in the Macau industry and they will tell you that high rollers in particular have ways of circumventing any rationing of China’s individual visit scheme visas. Whenever visa rationing arrived in the past, it tended to hit the little people in the mass market. These are precisely the people that Beijing wants to protect from any temptation to blow their life savings.
But equally we cannot assume that Mr Neves is as lacking in background insight about the Macau market and the Chinese macroeconomic picture as the average Joe in the street.
If he was obliquely warning of a slow down, should investors be worried? Not especially. Casino executives in Las Vegas and Atlantic City would bite your hand off if you offered them year-on-year GGR growth of 35%. But we live in strange times. Investors are nervous and markets are accordingly volatile. Who knows how markets may react to any suggestion of a Macau slow down—even it the hinted correction still assumes runaway growth?