Gaming stocks plunged suddenly on Thursday after China limited the amount of money Macau visitors could take out of the ATM. At just after 2:00 EST, the news hit the market, and shares of Wynn Resorts (NASDAQ:WYNN) fell 11.1%, Las Vegas Sands (NYSE:LVS) dropped 12.4%, and Melco Crown Entertainment (NASDAQ:MLCO) dropped 13.7% at the end of trading. MGM Resorts International (NYSE:MGM) was spared some of the pain because it is still Las Vegas-focused, but its shares were down 5.3% nonetheless.
The South China Morning Post has reported that China is cutting the amount of money customers can pull out of Union Pay cards in half to $626 per day after instituting an annual cap of $13,697 earlier this year. The impact of the Union Pay limit could hit mass-market focused companies like Las Vegas Sands and Melco Crown, but it's probably not going to be a big impact for Macau overall.
The bigger concern is that China is doing more to control its currency, worrying about people trying to get money out of the country and potential deflationary impacts coming down the pipeline as foreign currency reserves diminish. China has made moves to limit gambling in Macau over the past two years, mainly because it's an easy way to get money out of China, so we may see more of those moves coming.
The stock drops of more than 10% today were probably an overreaction -- at least, until we hear more about China's currency controls. And I would be very surprised if an ATM withdrawal limit is something that will have a measurable impact on the $27.8 billion Macau gaming market. With that said, if this is a sign that a further crackdown on capital heading to Macau is in store, there could be significant negative side effects.
Just as Macau begins to recover slightly, growing year over year the last four months, there's at least concern the industry could be headed into decline again. But I don't think the speculation today will stick around for long unless China's currency manipulation goes far beyond ATM limits. Macau is still a massive gaming market, and as the only place in China to gamble legally it's still an attractive location for investors. That long-term thesis hasn't changed in the matter of a few minutes of trading on the stock market.