Despite recent headwinds with Chinese economic growth, there is still no denying that the nation is quickly becoming a consumer tour de-force. Improving personal finances, high savings rates and rising wages have created the tailwinds of a major surge in shopper activity. As such, China's growing and prospering middle class continues to be an important sub-theme for investors in the region. Funds like the Global X China Consumer ETF (NYSE:CHIQ) have seen asset under management quickly rise as investors look to capitalize on increasing Chinese consumerism.
That rise in consumerism is spreading beyond buying new TV’s, cars and dining out. Consumption of entertainment in Asia’s Dragon is also surging. Especially when it comes to gambling. For investors, the former Portuguese colony and gambling mecca of Macau could be the key to Chinese consumer profits for years to come.
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While mature U.S. gambling sites like Las Vegas and Atlantic City struggle to capture discretionary spending, China’s Macau continues to experiencing record revenues. The island of Macau is located just 37 miles away from the financial hub of Hong Kong and is the only place in China where gambling is legal. This strict control and location has caused Macau to boom as the place for entertainment in the nation.
And booming it is.
According to the latest data from the Macau Gaming Inspection and Coordination Bureau, the region’s casino’s reported that gross gaming revenue rose 25.4% this past March to reach a new monthly record. Overall, Macau’s casinos raked in about $3.92 billion during the month. So far, gambling revenues are up nearly 14.4% to reach a total of $11 billion. There’s plenty of reasons to think the good times will continue to roll.
While Macau and neighboring Coati have often been the mecca for high net-worth gamblers and rich businessmen that is changing. The Chinese government has encouraged the proliferation of non-gaming revenue on the island including entertainment, conventions and shopping. To that end, developers have begun wooing middle-class visitors by expanding family-oriented offerings. Theme parks, arcades and other less “sin-full” activities are quickly becoming the norm for the region. Analyst’s estimate that these offerings will continue to drive future revenues as more Chinese consumers begin to travel and vacation.
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Betting On The House
Given Macau’s continued double digit revenue gains and China’s growing consumer market, betting on the firms that call the region their home certainly makes sense. A perfect broad way to play the region’s growth could be Market Vectors Gaming ETF (NYSE:BJK). The ETF tracks 46 different firms associated with gambling. These include firms with Macau exposure like MGM Resorts International (NYSE:MGM) as well as gaming equipment producers like SHFL entertainment (Nasdaq:SHFL). With expenses running a cheap 0.65% and a 1.56% SEC yield, the ETF offers a broad play on Macau and the world’s gambling obsession.
However, for those that want direct exposure to Macau and the Coati Strip, the trio of Melco Crown Entertainment Limited (Nasdaq:MPEL), Las Vegas Sands (NYSE:LVS) and Wynn Resorts (Nasdaq:WYNN) could be where it’s at. All three have seen rising revenues at their Chinese operations.
Melco Crown gets the nod as a pure play on Macau's growth. Through its four hotels, Melco has zero exposure to mature markets like Las Vegas. Additionally, the company seems to be making strides in adding those family oriented additions analysts are keen about.
For those who want pure gambling, both Wynn and Las Vegas Sands may make a better play. WYNN yields 2.9%, while LVS pays 2.5%. However, both firms paid large special dividends in 2012 that set yields above 7%. With Macau revenues still rising, analysts estimate that both firms could announce similar payouts this year as well.
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The Bottom Line
China’s growing consumer class isn’t just spending their hard earned money of fast food, TVs and designer handbags. It seems that the nation is developing a gambling addiction as well. That will continue to benefit the operators of casinos in the nation’s gaming mecca of Macau. For investors, betting on the region could be the best way to play the growing Chinese consumer.
At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.
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