What happened
Shares of casino stocks with exposure to Macao made a sharp recovery on Wednesday as China and Macao mull changes to COVID-19 restrictions. We're not seeing a recovery in the region yet, but investors are speculating that a flood of gamblers is on the way in the near future.
Shares of Melco Resorts (MLCO -0.79%) jumped as much as 16.4%, Las Vegas Sands (LVS 0.90%) bounced 11.4%, and Wynn Resorts (WYNN 0.04%) moved 10.1% higher. The three stocks are up a respective 10.9%, 9.6%, and 9.5% as of 3:10 p.m. ET.
Making a less impressive move is MGM Resorts (MGM -0.13%), which saw its stock trade 5.5% higher today and is currently up 4.2%. That makes sense given that MGM is the only one of these companies that didn't get a majority of its revenue from Asia before the pandemic.
Image source: Getty Images.
So what
Reports are circulating that China is exploring how to exit its lockdowns related to the coronavirus, which would lead to more normal economic activity in and around the country. For now, these are only reports, but it's China's "zero COVID" policy that's caused much of the devastation we see in Macao's casinos today.
For perspective, in February 2022 Macao's casinos generated $960 million in revenue, down from $3.17 billion in February 2019. Gambling has started to recover from shutdowns that began early in 2020, but is still nowhere near what it was three years ago.
As a result of slower gambling, Macao's casinos have been at best breakeven from a cash flow perspective, which is a huge change from their position as cash machines just a few years ago. There's at least a little bit of hope that the good days are once again on the horizon.
Now what
If U.S. casinos are any indication, when gamblers come back to Macao they will come back in large numbers. Las Vegas and other parts of the U.S. are reporting all-time record gambling numbers and that has pushed stock prices higher.
Macao has been a different story because Asia in general has been so much more strict with COVID-19 restrictions. But if restrictions do begin to ease it should help casino operations and cash flow.
I am cautiously optimistic today, but want to see a real recovery before getting too bullish. Restrictions will end someday, but this bounce could also be given back if China doesn't open up soon. And then there's the gambling concession question, which is looming over all operators in Macao until at least this summer. I'll hold on to my Macao stocks, but I'm not a buyer today, even if this ends up being a sign of better results ahead.
