Macau Can Spark The Casino ETF

Markets Benzinga

Up nearly 14 percent year-to-date, the VanEck Vectors Gaming ETF (BJK) is at a torrid pace. Macau, the world's largest gambling hub and the only Chinese territory where gambling is legal, is often a driver of BJK's price action and that could prove to be good news for investors as 2017 moves along.

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Macau Figures: Getting Better

Macau revenue numbers have been steadily improving. As Benzinga reported earlier this year, The February Macau revenue number topped analyst estimates of 21.5 billion patacas. Macau recorded 3.1 percent revenue growth in January. With seven consecutive months of positive growth in the books and weak comps ahead in early 2017, Macau finally seems to be headed in the right direction once again.

Other data points confirm that Macau is rebounding.

Fitch Ratings projects 12 percent gaming revenue growth in Macau for 2017. Year-to-date growth through March has been 13 percent, with February growing 18 percent on a year-over-year (YoY) basis. Fitch's 2017 forecast assumes low single-digit range month-over-month sequential growth for the balance of the year compared to 4 percent average sequential growth since July 2016, said Fitch Ratings in a note out earlier this week.

Why Macau Matters For BJK

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Macau is an important piece of the BJK puzzle because the ETF reflects the global nature of the gambling business. U.S. stocks are just 36.3 percent of the ETF's weight. Overall, 15 countries are represented in BJK's lineup, including an 11.1 percent weight to China. Australia is BJK's second-largest country weight at 15.6 percent.

Just four of BJK's top 10 holdings, a group combining for over 55 percent of the ETF's weight, are focused on gambling within the United States.

The forecasted growth rate for Macau gaming takes into account tougher year-over-year comparisons in the second-half of 2017 and the possibility that the tightening monetary policy and increased real estate restrictions may slow economic growth on the mainland, said Fitch. We expect about equal contribution from VIP and mass market revenues toward achieving Fitch's 12 percent growth forecast. VIP growth has been exceeding Fitch's expectations, growing 17 percent YoY in first-quarter 2017. Stronger economic indicators on the mainland, players getting acclimated to China's corruption crackdown initiatives and China's authorities heightened crackdown on casino marketing by foreign companies (so far those based outside Macau) could possibly attribute to VIP outperformance.

BJK holds 40 stocks and has $21 million in assets under management.

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