While China faces headwinds when it comes to economic activity and manufacturing, the nation continues to drive forward in terms of a rising consumer culture. Improving personal finances, high savings rates and rising wages are propelling a major surge in consumerism. As such, China's growing and prospering middle class continues to be an important sub-theme for investors in the nation.

Setting aside growing demand for televisions, cars and Coach Inc. (NYSE:COH) handbags, the Chinese are also very fond of rolling the dice with some of their disposable wealth. For investors, the former Portuguese colony and gambling mecca of Macau could be the key to Chinese consumer profits for years to come.

Rising Entertainment Budgets

While mature gambling destinations like Las Vegas and Atlantic City struggle with muted consumer spending in the U.S., Macau continues to be a bright spot for casino operators. Close to the Asian financial epicenter of Hong Kong, the special district’s 47 casinos have a virtual monopoly on gambling rights in China. And all of them continue to see rising spending at their tables and gaming machines.

After a strong March, Macau managed a new record for gaming revenues in April. All in all, $3.92 billion was gambled away in Macau last month. That’s a 10.6% increase over April 2013 ands on top of a nearly 20% increase in gambling revenue in the first quarter. Both numbers far outpaced best-case analyst projections.

There are plenty of reasons to believe that the good times will continue rolling, too.

Traditionally, Macau's casinos have been geared to high rollers and China’s mega-rich, though that has been changing quickly as China's wealth spreads. Casino and resort operators have begun making their offerings more family-friendly, similar to what Las Vegas did in the 1990s. Gamblers with kids in tow can now find theme parks, arcades and kid-oriented shows. As such, the VIP and high-roller segment has begun to shift, and now accounts for only about 35% of its gaming profit.

And with Beijing spending big dollars to improve bridges and other infrastructure into the region, Macau should continue to see rising interest from middle class mainland tourists. All in all, nearly 7.69 million people visited Macau during the first quarter. That’s an increase of 8.7%. The bulk of those visitors came from mainland China.

Placing Your Bets

With Macau continuing to a hotbed of activity, investors may want to give the region a place in their portfolios. A prime play should be the Market Vectors Gaming ETF (NYSE Arca:BJK). The ETF tracks 45 different firms associated with gambling. These include firms with direct Macau exposure like MGM Resorts International (NYSE:MGM), as well as gaming equipment producers like Bally Technologies, Inc. (NYSE:BYI). So far, BJK has been a great performer and has produced a 30% annual return over the last five years. Expenses for the ETF are a relatively cheap 0.65%. Likewise, the PowerShares Dynamic Leisure & Entertainment ETF (NYSE Arca:PEJ) does offer some exposure to the gambling theme.

To get focused Macau exposure, though, investors need to eye the individual superstars in the region.

At the top of that list is Las Vegas-based Wynn Resorts Ltd. (Nasdaq:WYNN). WYNN managed a 14.2% increase in its Macau revenues, according to its latest report. What’s impressive is that WYNN also realized 23%-plus gains in table play for both VIP and regular clients. That bests the average for all Macau casinos. With new resorts opening on Macau's Cotai Strip in 2016, WYNN looks to continue powering forward in China. For a more direct bet on Wynn’s China success, it sold a partial stake in Wynn Macau Ltd. (OTC:WYNMF) to the public a few years back.

Not to be outdone, Hong Kong-based Melco Crown Entertainment Ltd. ADR (Nasdaq:MPEL) features zero exposure to gaming outside of Macau, while Las Vegas Sands Corp.'s (NYSE:LVS) general focus is middle market and retail gamblers. Both have continued to rack up impressive earnings in the region.

The Bottom Line

China's growing consumer wealth is spilling over to areas of entrainment as well, namely gambling. Capturing the lion's share of that spending is Macau. Gambling revenues continue to rise in the region, and given just how big China’s consumer story is, the time to bet on Macau could be now.

Related Articles
  1. Options & Futures

    Going All-In: Comparing Investing And Gambling

    People often compare stocks to gambling, but how close are they really?
  2. Entrepreneurship

    Top 6 Factors That Drive Investment In China

    FDI in China surpassed $100 billion in 2010, certain key factors drive foreign direct investment.
  3. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
  4. Investing

    Three Companies That Will Benefit From Online Gaming

    Certain companies stand to benefit from the increasing popularity of the online gambling industry in the U.S., as well as its expanding legalization.
  5. Markets

    Moral Hazard in the Chinese Market

    The Chinese government faces the issue of balancing its desire to maintain stable markets through manipulation with the danger of a looming bubble if stock prices run up too much.
  6. Investing News

    U.S. Stock Markets Rebound

    After a string of losses in the past week amid declining oil prices, economic slowdown in China, U.S. and timing uncertainty interest rates hike by Fed, US Stock markets came back with a bang ...
  7. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  8. Investing

    Chinese Stock Market Ban Hurts Production

    Late June saw the beginning of a nearly $4 trillion rout of China’s stock markets that triggered a panicked Chinese government to intervene.
  9. Economics

    Is the Yuan a Yawn or a Nightmare for Investors?

    China’s decision to change the method of setting its currency exchange rate caused global shock waves last week.
  10. Investing

    China Lowers Interest Rates and U.S. Stocks React (Poorly)

    China’s central bank The People Bank of China (PBOC) slashed interest rates for the fifth time since November 2014 and relaxed their reserve requirement.
RELATED TERMS
  1. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  2. Asian Infrastructure Investment ...

    The Asian Infrastructure Investment Bank (AIIB) is an international ...
  3. Asia-Pacific Economic Cooperation ...

    Asia-Pacific Economic Cooperation (APEC) is a 21-member economic ...
  4. Gamification

    Gamification describes the incentivization of people's engagement ...
  5. Tianjin, China

    A definition of Tianjin, China.
  6. Hong Kong SAR, China

    Hong Kong is a financial and business center in China.
RELATED FAQS
  1. How autonomous are special administrative regions?

    When most people think of special administrative regions, or SARs, they are referring to Hong Kong and its relationship with ... Read Full Answer >>
  2. Can a special administrative region declare autonomy?

    Special administrative regions, or SARs, namely Hong Kong and Macau, do not declare autonomy so much as they are granted ... Read Full Answer >>
  3. What countries are currently considered to be special administrative regions?

    The two countries, both under the overall sovereignty of the People's Republic of China, designated as special administrative ... Read Full Answer >>
  4. What are the differences between H-shares and A-shares on Chinese and Hong Kong stock ...

    Publicly trade companies in China generally fall under three share categories: A shares, B shares and H-shares. A-shares ... Read Full Answer >>
  5. What taxes will I pay if I win a lot of money while gambling in Las Vegas?

    Every year, thousands of people travel to gambling hot spots, such as the Nevada cities of Las Vegas and Reno, with the hope ... Read Full Answer >>
  6. Who are Zynga's (ZNGA) main competitors?

    Originating in San Francisco in 2007, Zynga (ZNGA) is a leading developer of social media games such as "Words with Friends," ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!