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Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
On a day when the major U.S. indexes lost nearly 2% or more, the casino industry was hammered today. Shares of Wynn Resorts (NASDAQ: WYNN ) fell 5.9%, Las Vegas Sands (NYSE: LVS ) dropped 6.11%, MGM Resorts (NYSE: MGM ) fell 5.56%, Melco Crown (NASDAQ: MPEL ) bombed 8.46%, and even Caesars Entertainment (NASDAQ: CZR ) lost 4.54%.
Earlier in the week, shares of the major casino operators fell after JPMorgan Chase released a statement hinting that Macau's rapid growth seemed to be slowing. The investment bank lowered its rating on shares of MGM China, a subsidiary of MGM Resorts, based on valuation and limited growth potential around the world for the next few quarters. But, despite JPMorgan Chase affirming its belief that Wynn, Melco, and Las Vegas Sands still had room to run and were on its buy list, those stocks also fell on the news earlier in the week.
Adding to investors' concerns was the Chinese manufacturing report released yesterday that indicated that the country's economy was clearly slowing down. This was the first time in six months that Chinese manufacturing showed weakness. If the Chinese economy begins to falter, the country may begin seeing discretionary income fall, and the number of Chinese traveling to Macau will likely decline.
Additionally, though, Macau is currently the center for gaming in Asia as it draws customers from the whole region. Many of those customers are coming from emerging markets, which also was today's focal point for investors. This morning, we began seeing investors pull their money out of emerging markets, and a number of these country's currencies were hammered. The Chinese yuan fell 0.048% against the dollar, while the Thai baht dropped 0.21% today. The Singapore dollar also declined. Investors' concerns about the health of these countries not only may hurt the ability of the region to grow and expand, but also the area's workforce and employment rates, which would affect discretionary income levels. Furthermore, if the major casino operators are holding a lot of cash from the countries, they may be hurt on exchange rates if the currencies don't recover.
During the past few years, the growth in Macau has really been keeping the major casino operators in business, and it's currently the place where the majority of their profits come from. This doesn't hold true for Caesars, which currently operates properties only within the U.S. So, if Macau growth begins to slow, or even begins to decline, all of the operators with properties in that area will be seriously affected, and lowered earnings forecasts by both management and analysts would likely follow. If that happens, investors should prepare themselves for some major declines.
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