Shares of casinos with exposure to the Macau gaming region in China were falling Thursday after the chief executive of the region wouldn't rule out the possibility of closing down the gaming enclave amid a deadly outbreak of the coronavirus.
The timing of the virus outbreak is unfortunate as Lunar New Year celebrations begin at the end of the week. Any cancellation in bookings or visits to the gaming region could be a major headwind for American casinos with exposure to the region.
“While at this stage, we have not yet heard of any material cancellations of hotel booking or customer visits for the holiday period, the reality is that there will be cancellations,” Bernstein analyst Vitaly Umansky wrote in a note.
The two-week Chinese New Year celebration starts on Jan. 25.
However, Bank of America analyst Shaun Kelley had a different view, suggesting that a major selloff in casino stocks is an overreaction to the coronavirus news.
Kelley estimated that the 2003 outbreak of SARS in China was the bear-case scenario while the 2009 swine flu outbreak is the bull case at this point. Kelley said that so far coronavirus is looking more similar to the latter than the former.
"Additionally, our Hong Kong team’s channel checks point to limited disruption and while we remain cautious, we do not see large amounts of incremental risk at this point," Kelley wrote in a note.