Is Macau’s Hold on China’s Gambling in Question?: Melco Crown Entertainment Ltd (ADR) (MPEL)

Macau’s challenge
Anything new is a challenge to Macau, especially if it comes from within China’s borders. Considering the proximity to mainland China, Hainan would be a greater threat to Macau than Vietnam, Japan, or even Singapore.

There’s also the weather to consider. Macau is often covered in smog and hot or rainy weather is part of the seasonality of the area. If you were to choose a vacation spot based on weather alone, Hainan would win hands down. This would bring vacationers or mass-market players looking for entertainment with a side of gambling, much like what Las Vegas has become.

Time to sell Macau
Hainan is a long way from challenging Macau in any meaningful way, but it’s worth keeping an eye on. If the region were allowed to add gambling, it could suck growth out of Macau, particularly in the mass-market segment. But we’re years from that happening.

I would actually be more concerned about new gaming regions like Japan, Korea, Vietnam, and the Philippines for the time being. These new gaming regions, along with Singapore, spread the gambling dollars in Asia, which makes it less profitable for everyone. Look at what happened with gambling in the U.S. as it became ubiquitous: Companies saw profits decline.

We’ll keep an eye on any developments, but for now I wouldn’t be selling Macau’s gaming stocks because of the threat from Hainan and certainly don’t see this as a reason to buy MGM or Caesars. That may change in the future, but for now Macau is still the only place to be for gambling in China.

The article Is Macau’s Hold on China’s Gambling in Question? originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium manages an account that owns shares of Wynn Resorts, Limited. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned.

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