A virus in the economy

There will be no other economy in the world that is both so rich and so precarious. Increasingly dependent on what happens in China, Macau itself catches a cold every time the Mainland sneezes. Now it was Wuhan’s virus… 

MB March 2020 Special Report | Cotai 3.0 (2019-2022)

On the 16th January, brokerage Deutsche Bank Securities Inc published a report saying: “we have a tough time thinking that (even half of) the negatives thrown at… Macau… last year [such as VIP smoking ban, renminbi depreciation or the Hong Kong protest] will recur this year.” 

Eight days later, analysts DS Kim, Derek Choi and Jeremy An would no longer be so optimistic that things could only get better for Macau in 2020. 

In a memo released a few days after a second case of viral pneumonia linked to the coronavirus originally reported in Wuhan in Hubei province, Deutsche Bank Securities Inc said it still expected year-on-year gains in the second half of this year, but… “To the extent the spread of the coronavirus is contained, we believe the fundamental backdrop of flattish first-half 2020 market trends followed by a sustained second-half 2020 GGR inflection remains reasonable,” wrote DB analysts. 

In other words, and this is the truth, it is March and no one can say what the year will be like. 

The big question is whether the gambling market will recover, after the fall in 2019, whether it will remain stable or sink again. The local economy contracted by 2.5 per cent in the first half of 2019, enduring two consecutive quarters of negative growth, and with the third quarter registering a 4.5 per cent drop. 

In an economy completely dependent on a specific source of income (tourism and gambling), and that source of income with basically only one source (China), any prediction is at least risky. Or, at least, it has to be relativized: what is true today may not be a week later… 

Very knowledgeable of the local reality, experts from the University of Macau did not hesitate to aggravate the forecast of recession, now projecting that the local gross domestic product will decrease 3.7 per cent. 

This update comes less than four months after the last update (0.9 per cent decrease in the Macau economy for 2020) and was released even before the impact of the coronavirus was known. 

This decrease would come as a result of a significant reduction in total fixed asset formation and dropping tourism and gaming revenues, and as a result of continuing US-China trade tensions, UM Economics Assistant Professor, Kwan Fung, said last January. 

At the time of writing this text, the impact of the virus is still unknown. 


Deutsche Bank noted in its second January memo: “While concerns around the coronavirus have taken a bit of steam out of the Macau names this week, we continue to see data points that we believe speak well to VIP stability and continued double-digit mass growth in Macau into 2020.” 

Same said Fitchs Ratings: “If Wuhan’s viral outbreak increases sharply, we believe that macroeconomic effects would initially be most felt in Asia, where the virus originated. The service sector’s activity, particularly in areas associated with tourism, would be the most vulnerable, which could leave economies such as Thailand, Vietnam and Singapore exposed, in addition to Hong Kong and Macau, both of which already have negative perspectives.” 

The most optimistic forecasts, made at the end of last year, accounted for a slight growth in gross gaming revenue. 

Ambrose So Shu Fai, vice-chairman and chief executive of SJM Holdings Ltd, for instance, shared a positive outlook, saying he was “confident” in the prospect of Macau’s gaming revenue for 2020. 

MGM China’s CEO, Grant Bowie, also talked about positive signs: “I don’t think it is as easy as the past, but I’m still very positive that the future is going to be very bright. And I think what we need to do is … look for slow and steady increases rather than very rapid increases.” 

According Sanford C. Bernstein, in early January, the local economy could grow by “8 per cent.” The brokerage company said its estimated growth acceleration for this year’s GGR was “back-ended” (will occur mostly in the second half of the year). 

The uncertainty regarding 2020 is being felt especially in the offices of SJM, which has its Grand Lisboa Palace almost ready and needs a good context to get a good start. Other concessionaires also have ongoing investments, but due to the volume or the importance of the work, none is as important as SJM’s IR in Cotai.