MGM - Casino stocks rebound as China Covid concerns ease
2023-06-13 10:44:07 ET
China might be experiencing a new Covid-19 wave and the country’s history of harsh lockdowns has some investors, especially in casino stocks, worried. In May, positive COVID test results across the country came in at 40%, marking the highest level seen since January.
Concerns of another potential lockdown due to the rising infections have hit Chinese and casino stocks hard. However, the weakness appears to be short-lived as casino stocks with a presence in China have rebounded off recent lows.
No longer ‘interested’ in case counts
Paul Donovan, Chief Economist at UBS Global Wealth Management recently told Yahoo Finance Live that he is “not necessarily interested in case counts” anymore. What’s more important, especially in China, is consumer behaviour. He said:
So we now need to look ahead and see, OK, are people’s behaviour patterns changing as a result of this situation? And if they’re not, the economics of this is fairly negligible. When it comes to the Chinese economic revival, this has actually been quite parochial. It’s been quite inwards-looking.
Chinese consumers are very much travelling around, at least internally. Macau, technically a special administrative region of China, welcomed back visitors from mainland China in January. Macau is now the top destination for Chinese travellers within Asia, according to Reuters .
Casino stocks have rebounded
Casino stocks with a Chinese presence rebounded after showing signs of weakness as of late.
To mention a few examples of the most affected casino stocks:
- MGM Resorts International ( NYSE: MGM ) dipped below the $40 level in early June but is now showing signs of strength above $43.
- Las Vegas Sands ( NYSE: LVS ) dipped from above $60 in May to the $56 level in early June but has since recovered those losses.
- Wynn Resorts ( NASDAQ: WYNN ) was trading at $110 in May and tested the $95 level in early June before recovering.
All three of these names have a strong presence in Macau and at best, the COVID situation in China remains stable. China was home to some of the world’s harshest lockdowns, and certainly, a return back to lockdowns would punish casino stocks.
COVID-related closures in China (and by default in Macau) remain a possibility which would force gamers to seek online alternatives. Many will try an unlicensed casino for fun and players might come to prefer the online nature of gambling. This poses a longer-term headwind for physical casinos which may never fully recover from a fresh round of COVID restrictions.
Chinese stocks performance
In China, China’s benchmark stock index erased all its gains for the year as a weaker Yuan and developers’ debt woes added to persistent worries over the new Covid-19 wave. The CSI 300 Index is 7.30% lower compared to last year, with the energy and financial sectors leading the decline.
China’s benchmark stock index has been among the worst performers in Asia this year as Chinese stocks wipe out 2023 gains as headwinds intensify. In the larger Asia region, the MSCI Asia Pacific Index has had a more than 3% advance so far.
Chinese authorities are currently doing all they can to bolster their vaccine arsenal by targeting the XBB Covid-19 variant, which is the latest omicron variant.
Citing a presentation by respiratory disease specialist Zhong Nanshan at a biotech conference in the southern city of Guangzhou a local media outlet on Monday warned that the infections will hit 40 million infections a week by the end of May, before peaking at 65 million infections a week by the end of June if conditions remain as they are.
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