The Chinese consumption story is playing out in the world’s gambling capital.
Gaming ETFs are on a winning streak thanks to the continuing rise in the spending power of the Chinese middle class that is taking the country’s consumption-focused economic reform policy to heart at the casino tables.
China’ switch from an export-heavy economy to increasing domestic demand has fueled gambling revenue in Macau to a 16.7 percent rise in September, year-on-year, to the tune of 260,632 billion patacas ($32.6 billion), according to government data.
In the first seven months of this year, overall visitor arrivals were up 4 percent over the same period the year before, with those from China up 10 percent—higher than the 7 percent a year before, according to Fitch Ratings. The share of Chinese tourists now accounts for about 60 percent of the total.
All of the positive fundamentals have fueled returns for the $58.1 million Market Vectors Gaming ETF (BJK | D-66), which gained 39.2 percent year-to-date, and, to a lesser extent, the $153.8 million PowerShares Dynamic Leisure and Entertainment ETF (PEJ | B-16), which is up 38.71 percent YTD.
Chart courtesy of StockCharts.com
BJK’s top three holdings include Las Vegas Sands Corp, Macau-based Sands China and Wynn Resorts. The ETF’s other Macau exposures are Galaxy Entertainment Group and Wynn Macau, and its total weighting toward gaming is 53.1 percent.
PEJ’s portfolio, which has a significantly lower weighting to gaming (7.84 percent), includes Priceline, Time Warner and Starbucks as its top three holdings. The fund also has gaming exposure via MGM International and Starwood Hotels and Resorts Worldwide, which has two properties in Macau.
“Macau casino names are benefiting from a recovery in the Chinese economy, but I would say that the gaming market has been pretty healthy in comparison to the overall Chinese economy,” said Esther Kwon, an investment analyst at Standard & Poor’s.
“The mass market [in China] is benefiting from rising consumer discretionary income and that’s really the driver in Macau now. There’s also no new room supply coming in until 2015, so you’ve got more limited supply for the next few years,” she added.
Kwon also noted that longer-term infrastructure investments being made by the Macau government will cut travel time to Macau from mainland China, thus bringing in more fortune seekers to the world’s gambling capital.