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In February 2002, Macau, a small island off the southern coast of China, issued permits to three U.S. gaming companies allowing them to build an unlimited number of casinos over the next 20 years. Analysts at the time predicted that, in 10 years, Macau could become the next Las Vegas. But in terms of revenue, it may take only five years.
The promises have borne fruit, and Las Vegas Sands opened the Macau Sands in May 2005, the first casino in Asia operated by a Western-based company. Wynn Resorts will be next, with the opening of the Wynn Macau in September. MGM Mirage will unveil the MGM Macau in early 2007 under a 50/50 joint venture. In 2007, Macau is predicted to become the world's top gaming and entertainment destination and is expected to surpass Las Vegas in terms of annual gaming revenue, according to analysts. It is estimated that 10 to 15 casinos, with 4,000 to 4,600 gaming tables, will be operational by the end of 2008. By 2009, Macau expects to be filled with state-of-the-art shopping centers, dining areas and entertainment facilities. Currently, 4.6 million square feet of retail space is in planning or under construction. And based on the recent gains in these gaming stocks, Wall Street has taken notice of the island's huge growth potential. So far this year, shares of Las Vegas Sands are up 55%, Wynn Resorts is trading higher by 45%, and MGM Mirage saw its shares rise 25%. But despite recent gains, I believe shares of all three gaming companies could move even higher in the longer term. Underestimating Spending Potential in MacauValue Line reports that, thanks to China's booming economy, Chinese consumers have accumulated more than $1.5 trillion in savings over the past two decades. The nation's economy is still growing, and the next 10 years will bring in additional hoards of discretionary capital. Macau, a special administrative region of the People's Republic of China, stands to benefit from this boom, given its proximity to mainland China, where gambling is illegal.
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In keeping with TSC's editorial policy, Frank Curzio doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Frank X. Curzio is a research associate at TheStreet.com, where he works closely with Jim Cramer. Previously, he was the editor of The FXC Newsletter and senior research analyst for Greentree Financial. He appreciates your feedback; click here to send him an email.
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