Fitch downgrades Macau’s rating

The agency Fitch has downgraded Macau’s rating from “Stable” to “Negative” due to issues with mainland China.

Macau.- Fitch Ratings has changed its rating for Macau and downgraded it from “Stable” to “Negative”. The agency said that the downgrade is due an increased exposure to mainland China.

“The agency’s ‘AA’ rating on Macao is currently two notches above that of mainland China (A+/Stable), and rests on the assumption that the territory’s governance, rule of law, economic policy framework, and business and regulatory environments remain distinct from that of the mainland,” said Fitch Ratings.

The agency also talked about the gaming industry and explained that Macau operations of US casino operators are not likely to be enveloped in ongoing US-China trade tensions, “given the potential ramifications this could have on local employment and the territory’s social stability.”

Fitch said that Macau’s growth outlook could be indirectly affected by further escalations in the US-China trade tensions. “The gaming industry represents 51% of aggregate activity and 22% of the employed population, despite efforts to diversify into other sectors. This elevated concentration to a single industry exposes the economy to shocks, and has contributed to Macao’s historically high level of GDP volatility,” said Fitch.

GGR shows no improvement

Bernstein Research said that two weeks in December, the gambling industry has shown no signs of improvement and has recorded a 16% year-on-year decline so far.

“Both Mass and VIP have been trending lower during the first half of December. We estimate Mass to be down low-to mid-single digits % y/y while VIP volumes are down in the low 30s %. VIP hold rate is on the high end, but lower than last December,” the analysts wrote.

Bernstein analysts predict a 12% to 16% decline year-on-year in December, but still has a positive outlook in the long-run.

Bloomberg’s estimations

Bloomberg forecasts indicate that gaming revenue will decline from a 14% growth in 2018 to a 3% setback in 2019. The analysts from Bloomberg said that gaming revenue in 2020 is expected to improve approximately 3%, which is significantly lower than the 2018 figures. It is unclear whether Macau will be able to come back to double-figure increases in the next couple of years.