Inside Asian Gaming

INSIDE ASIAN GAMING | February 2010 Macau Policy W hile it is early in2010, thereareanumber of events andpolicy statements that we believe paint the outlook for Macau in 2010. The key policies we are focusing on include: • The PRC government’s desire to cool property prices, which have risen 26% in the last 18 months. • China’s monetary policy, which has a greater bias towards monetary tightening (mainly due to the desire to cool bank lending for property purchases). • Comments by Macau’s new incoming chief executive, Fernando Chui, with regard to the diversification of the economy. • Singaporean junket regulations, which make the registration of junkets challenging. Of the above four policy objectives, the one that has received the most air time and rocked the markets relates to recent decisions to pull back the rampant credit growth in China and tighten monetary policy so as to cool the property market in China. At the risk of oversimplification, these policy moves have been one of the main drivers of the weakness in the Hong Kong/Chinese stock markets, as Chinese monetary policy has been a driver of asset price (mainly property) inflation in China, which in turn has built consumer sentiment and the wealth effect in China. We believe the policies have a number of implications for the sector. The key ones include: Implication 1: Property prices affect VIP growth Theunderlyingmotivationbehindtherecentmonetarytightening announcements are to cool down property prices in China, which rose significantly (26%) over the last 18 months. Hence, the question in the minds of investors should also be that even if monetary policy is not tightened any further, will the PRC government’s desire to cool property prices have any implication for Macau’s property market? Our analysis indicates that there is reason to be cautious on Macau’s VIP revenues (rather than mass-market revenues) given cooling property prices. The chart below shows the relationship between property prices and Macau’s VIP gaming market, extending back to 2003, and illustrates that VIP gaming revenues in Macau are affected by property prices with a three-month delay. We can see that happening during several points in time, the latest being 2008/09. However, while the China-wide property price decline may not look Macau Policy Watch Gary Pinge (Senior VP, Gaming Research, Macquarie Securities HK) looks at the impact of recent policy decisions in China, Macau and Singapore on the Macau gaming sector Residential high-rises in Guangzhou 28