Where goes Macau casinos goes Oz property

Advertisement

From Fairfax:

The possibility – however slight – of a meaningful crackdown by Beijing on capital outflows has prompted CLSA analysts to downgrade Australian casino operators Crown , Echo and SkyCity.

“Although it remains an open question as to whether China has the will or the means to exercise such a restriction Australian casino revenues would not be immune, while Macau could see further downside,” CLSA writes in a note to clients, saying risks of restrictions on Chinese capital outflows have increased.

“While the team think this is unlikely, they present a bear case where Australian VIP revenues halve by FY17 and mass revenues fall 3 per cent, resulting in EBITDA declines of 13-22 per cent.”

The analysts believe the more likely impact – if any – will be on mass market revenues as a result of softer house prices, with Sydney and Melbourne at the greatest risk.

“That said the team also acknowledge that VIP revenues will be more difficult to regulate given high net worth individuals are likely to be able to find a way around capital flight restrictions,” they wrtite. “The majority of VIP play in Australia is now funded by junkets – the VIP gambles, the junket settles with the casino, then collects any losses from the VIP in either China or overseas.”

The MB view is that this is already happening at the margin and will continue to worsen. China’s macro economic situation with the dollar peg and falling interest rates is baldly unsustainable. The only way out without crashing the yuan and triggering global chaos is for China to point its multitudinous rifles at capital flight as it cuts rates.

To wit, the anti-corruption campaign may also be about to ramp up again, from the SCMP:

Advertisement

Fujian governor Su Shulin is under investigation for disciplinary violations, the Central Commission for Discipline Inspection said late Wednesday night, using the euphemism for corruption.

The statement did not provide further details.

Su previously served in the nation’s oil sector, the power base of former security tsar Zhou Yongkang.

Su appeared in public on September 29, when he visited typhoon-hit Fuzhou.

He was vice-president of China National Petroleum Corporation between 2002 and 2006, and moved to Sinopec as chairman from 2007 to 2011, before being named Fujian’s governor and deputy Communist Party chief.

His time at CNPC overlapped with that of Jiang Jiemin, another former top executive at the company who was named director of the State-owned Assets Supervision and Administration Commission in March 2013.

The Chinese bid is in trouble.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.