Despite Road Bumps, Chinese Casinos Will Still Rebound

Even though Macau gaming revenues grew a lower-than-expected 3% in January, a recovery for the casinos there is still in the works. Shares of major U.S.-listed casino and resort companies that have businesses in Macau fell Wednesday on the news, but such declines merely present an opportunity to buy the stocks at a discount.

Things haven't been very stable for Macau over the past few years, as gambling revenue fell for the third straight year in 2016. A prolonged anticorruption campaign by China and stalling economic growth in the region challenged the long-term stability of Macau-based casinos.

Since taking power in 2012, Chinese President Xi Jinping has tasked the Central Commission for Discipline Inspection with investigating the Chinese Communist Party for corruption. In 2015 the government charged more than 280,000 people with illegally acquiring public money according to CCDI deputy Wu Yuliang. The crackdown has severely cut into the number of VIP patrons going to Macau casinos since there are now severe punishments for gambling with public money.

Despite the weaker-than-expected January revenue (which included Chinese New Year this year), we expect that things will eventually take a turn for the better for the casinos.

After MGM Resorts International's  (MGM) second delay in the opening of its Cotai casino, the casino is finally expected to open in the second half of 2017. Investors are expecting the new casino to boost MGM's results. MGM's operations in China make up 20% of the company's total revenue.

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