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Business

Tesla, megacap growth stocks pull Nasdaq lower; Dow rises

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  • Tesla slumps on report of reduced output plan
  • China ADRs rise on reopening optimism
  • Indexes mixed: Dow up 0.40%, S&P down 0.11%, Nasdaq down 0.80%

Dec 27 (Reuters) – The tech-heavy Nasdaq came under pressure on Tuesday following declines in some megacap growth stocks and Tesla, while optimism around an economic recovery in China after the country further eased its COVID-19 curbs helped cap losses.

Tesla Inc (TSLA.O) tumbled 8.1% to hit a more than two-year low after Reuters reported that the electric vehicle maker plans to run a reduced production schedule at its Shanghai plant into January. The stock has lost more than two-thirds of its value this year.

Megacap growth stocks Apple Inc (AAPL.O), Alphabet Inc (GOOGL.O) and Amazon.com Inc (AMZN.O) slipped between 1% and 1.5% as U.S. Treasury yields rose.

The declines made consumer discretionary (.SPLRCD) and technology (.SPLRCT) the worst performers among major S&P 500 (.SPX) sector indexes.

However, sectors closely tied to the economy, such as industrials (.SPLRCI), materials (.SPLRCM) and energy (.SPNY), advanced, helping the Dow Jones (.DJI) to eke out gains.

“What you’re seeing is a battle between investors who are doing year-end tax selling and investors that believe that normal inflows in January will lead to a better market,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

Meckler also pointed to thin trading volumes playing its part in market volatility.

Growth stocks have been under pressure this year from a rise in U.S. Treasury yields after the Federal Reserve embarked on an aggressive interest rate hike campaign to tame a surge in inflation, with investors turning to high dividend-yielding value stocks such as energy.

The S&P 500 growth index (.IGX) has tumbled 30% this year, compared with a 7% drop for the value index (.IVX).

U.S.-listed shares of Chinese firms such as JD.Com Inc , Alibaba Group Holding Ltd and Pinduoduo Inc (PDD.O) climbed between 2% and 3.8% after China said it would stop requiring inbound travelers to go into quarantine starting Jan. 8.

Investors are hoping for a so-called “Santa rally” at the end of what has been a largely disappointing month for U.S. equities.

The S&P 500 (.SPX) and the Nasdaq (.IXIC) have lost around 5.7% and 9% so far in December and are on track for their biggest yearly loss since 2008 as the monetary policy tightening sparked worries of the economy tipping into a recession.

Economic data so far has offered little hope. Inflation has cooled further, but not enough to discourage the U.S. central bank from driving interest rates to higher levels next year.

Money markets are pricing in 59% odds of a 25-basis-point interest rate hike at the Fed’s February meeting and expect rates peaking at 4.98% in May. .

At 11:52 a.m. ET, the Dow Jones Industrial Average (.DJI) was up 133.48 points, or 0.40%, at 33,337.41, the S&P 500 (.SPX) was down 4.22 points, or 0.11%, at 3,840.60, and the Nasdaq Composite (.IXIC) was down 83.89 points, or 0.80%, at 10,413.97.

Southwest Airlines Co (LUV.N) shed 4.9% after cancelling thousands of flights, piling more pressure on the S&P 500.

Declining issues outnumbered advancers for a 1.01-to-1 ratio on the NYSE and 1.43-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and three new lows, while the Nasdaq recorded 61 new highs and 311 new lows.

Reporting by Amruta Khandekar and Ankika Biswas in Bengaluru;
Editing by Vinay Dwivedi and Sriraj Kalluvila

Our Standards: The Thomson Reuters Trust Principles.

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Business

Wall Street falls fourth straight day as recession worries nag

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  • Fed hikes, recession fears in focus
  • L3Harris slides after $4.7 bln Aerojet buyout Indexes down: Dow 0.49%, S&P 0.90%, Nasdaq 1.49%

Dec 19 (Reuters) – Wall Street closed lower on Monday for a fourth straight session with Nasdaq leading declines as investors shied away from riskier bets, worried the Federal Reserve’s tightening campaign could push the U.S. economy into a recession.

The three major U.S. stock indexes have been under pressure since Wednesday, when Fed Chair Jerome Powell took a hawkish tone while the central bank raised interest rates. Powell promised further rate increases even as data showed signs of a weakening economy.

The S&P 500 (.SPX), the Dow Jones industrials (.DJI) and the Nasdaq have sold off sharply for December and are on track for their biggest annual declines since the 2008 financial crisis.

While U.S. Treasury yields gained, investors ran from stocks, eyeing prospects of safer bets as they worried about the likelihood of a recession in 2023 according to Brian Overby, senior markets strategist at Ally.

“Investors are asking why do I want to take those risks going into 2023 with the Fed’s stance still aggressive when I can get such a good yield on the fixed income market place,” he said.

The lack of big earnings reports or economic data on Monday likely sharpened investors’ focus on economic fears and interest rates, according to Melissa Brown, Global Head of Applied Research at Qontigo in New York.

“It’s a knife edge between whether we’re going to teeter into a recession or have a soft landing. Is the Fed acting appropriately?” said Brown who also noted that moves may be exaggerated as many investors take vacation around the end-of-year holidays.

The Dow Jones Industrial Average (.DJI) fell 162.92 points, or 0.49%, to 32,757.54, the S&P 500 (.SPX) lost 34.7 points, or 0.90%, to 3,817.66 and the Nasdaq Composite (.IXIC) dropped 159.38 points, or 1.49%, to 10,546.03.

The biggest decliners among S&P industry sectors were communications services (.SPLRCL), which fell 2.2%, consumer discretionary (.SPLRCD), down 1.7% and technology (.SPLRCT), which lost 1.4%. Energy (.SPNY) outperformed, closing up 0.13% as the sole industry out of 11 to manage a gain.

Market heavyweights such as Apple Inc (AAPL.O), Microsoft Corp (MSFT.O) and Amazon.com Inc (AMZN.O) created some of the biggest drags on the market.

Trading in Tesla Inc (TSLA.O) was volatile with the electric carmaker closing down 0.24% after falling as much as 2.8% during the session. This was after a Twitter poll that showed a majority of respondents want Tesla Chief Executive Elon Musk to step down as CEO of the social media platform.

Meta Platforms (META.O) shares finished down 4.1% after the European Commission said it could impose a fine of up to 10% of the tech conglomerate’s annual global turnover if evidence showed an infringement of the EU’s antitrust laws.

L3Harris Technologies Inc (LHX.N) lost 3.6% after the U.S. defense contractor said it would buy hypersonic engine manufacturer Aerojet Rocketdyne Holdings Inc (AJRD.N) for $4.7 billion. Aerojet added 1.3%.

Shares of casino operators Melco Resorts & Entertainment tumbled just under 8% and Wynn Resorts (WYNN.O) lost 5.2% while Las Vegas Sands Corp (LVS.N) fell 2.3% after Macau said on Friday that six casino firms will invest around $15 billion as part of new 10-year contracts they signed to operate in the world’s biggest gambling hub.

Declining issues outnumbered advancing ones on the NYSE by a 2.80-to-1 ratio; on Nasdaq, a 2.63-to-1 ratio favored decliners.

The S&P 500 posted 5 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 66 new highs and 456 new lows.

On U.S. exchanges 11.07 billion shares changed hands, compared with the 11.59 billion average for the last 20 trading days.

Reporting by Sinéad Carew, Sruthi Shankar, Shubham Batra, Johann M Cherian and Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty, Maju Samuel and David Gregorio

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World

Malaysia landslide kills 12 at campsite, more than 20 missing

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  • Landslide ripped through farm campsite around 3 am
  • Eight injured, at least 50 found safe
  • Almost 400 people involved in search and rescue – police

KUALA LUMPUR, Dec 16 (Reuters) – A landslide killed at least 12 people while they slept at a campsite in Malaysia early on Friday, officials said, as search teams scoured thick mud and downed trees for more than 20 people still missing.

The landslide in Selangor state, on the outskirts of capital, Kuala Lumpur, occurred about 3 a.m. (1900 GMT), tearing down a hillside into an organic farm with camping facilities, the state fire and rescue department said in a statement.

Teh Lynn Xuan, 22, said she was camping with 40 others when the landslide struck. She said one of her brothers died, while another is in the hospital.

“I heard a loud sound like thunder, but it was the rocks falling,” she told Malay-language daily Berita Haria. “We felt the tents becoming unstable and soil was falling around us. Luckily, I was able to leave the tent and go to someplace safer. My mother and I managed to crawl out and save ourselves.”

More than 90 people were caught in the landslide and 59 have been found safe, with 22 still missing, according to the fire and rescue department.

In addition to the 12 dead, eight were hospitalised, it said.

One of those taken to the hospital was pregnant, while others had injuries ranging from minor cuts to a suspected spinal injury, health minister Zaliha Mustafa told a news conference.

District police chief Suffian Abdullah said the dead were all Malaysians and included a child about 5 years old.

Almost 400 people from several agencies had been deployed, with search-and-rescue efforts ongoing, he told a news conference.

The landslide came down from an estimated height of 30 metres (100 ft) above the campsite, and covered an area of about one acre (0.4 hectare), according to the fire and rescue department’s state director.

Footage from local television showed the aftermath of a large landslide through a steep, forested area beside a road, while other images on social media showed rescue workers clambering over thick mud, large trees and other debris.

Reuters Graphics

“I pray that the missing victims can be found safely soon,” Malaysia’s minister of natural resources, environment and climate change, Nik Nazmi Nik Ahmad, tweeted on Friday morning, one of several ministers who were heading to the scene. “The rescue team has been working since early. I’m going down there today.”

The disaster struck about 50km (30 miles) north of Kuala Lumpur in Batang Kali town, just outside the popular hilltop area of Genting Highlands, an area known for its resorts, waterfalls and natural beauty.

News agency Bernama tweeted that all campsites and water recreation areas around Batang Kali had been ordered to close immediately until further notice, citing the minister of home affairs.

Pictures posted on the Father’s Organic Farm Facebook page show a farmhouse in a small valley, with a large area where tents can be set up.

Selangor is the country’s most affluent state and has suffered landslides before, often attributed to forest and land clearance.

The region is in its rainy season but no heavy rain or earthquakes were recorded overnight.

A year ago, about 21,000 people were displaced by flooding from torrential rain in seven states across the country.

Reporting by Rozanna Latiff, Angie Teo, Yantoultra Ngui and Hasnoor Hussein; Writing by Lincoln Feast; Editing by Ed Davies and Gerry Doyle

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Business

Wall Street slips as concerns rise of stricter China COVID curbs

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  • Dow down 0.13%, S&P 500 down 0.39%, Nasdaq down 1.09%
  • Disney jumps on Iger’s return as CEO
  • Grindr falls after rocketing in debut
  • Tesla down on vehicle recall, China COVID concerns

Nov 21 (Reuters) – Wall Street’s main indexes ended Monday roughly down on fears that China could resume stricter measures to fight COVID-19 after it said it faces its most severe test of the pandemic.

Beijing said on Monday it would shut businesses and schools in hard-hit districts and tighten rules for entering the city, as infections ticked higher.

“There is this fear that China might reinstitute some of the COVID restrictions that they’ve just purportedly started to lift,” said Carol Schleif, deputy chief investment officer at BMO Family Office.

U.S. casino operators with businesses in China including Wynn Resorts Ltd (WYNN.O), Las Vegas Sands Corp (LVS.N), MGM Resorts International (MGM.N) and Melco Resorts & Entertainment Ltd all fell at least 2%.

The Dow Jones Industrial Average (.DJI) fell 45.41 points, or 0.13%, to 33,700.28, the S&P 500 (.SPX) lost 15.4 points, or 0.39%, to 3,949.94 and the Nasdaq Composite (.IXIC) dropped 121.55 points, or 1.09%, to 11,024.51.

Trading volume was low on Monday, and likely to lessen towards the Thanksgiving holiday on Thursday, leaving markets more prone to volatility.

Volume on U.S. exchanges was 9.43 billion shares, compared with the 11.88 billion average for the full session over the last 20 trading days.

“If you want to blame a little bit of profit taking on some concerns on spikes in COVID cases, that’s fine,” said Jack Janasiewicz, lead portfolio strategist and portfolio manager at Natixis Investment Managers Solutions. “It gets really tricky because of volume.”

Stocks trimmed losses in early afternoon after the San Francisco Federal Reserve President Mary Daly commented that officials need to be careful to avoid a “painful downturn.”

Cleveland Fed President Loretta Mester echoed Daly, saying she supports a smaller rate hike in December.

The S&P 500 energy sector index (.SPNY) fell almost 3% on Monday to its lowest level in four weeks as oil prices tumbled more than 5% after a report that Saudi Arabia and other OPEC oil producers were discussing an output increase. The index, however, pared losses after Saudi Arabia denied talks about it.

Energy was the only major S&P 500 sector eying gains for the year, surging around 63%.

Walt Disney Co (DIS.N) jumped 6.30% after Bob Iger’s return as chief executive to the entertainment giant.

The S&P 500 extended its fall from the previous week when multiple Federal Reserve officials reiterated the central bank’s pledge to raise rates until inflation was in check, as investors now await the release of minutes from the Fed’s November meeting on Wednesday.

Traders are widely betting on a 50-basis point hike in the December meeting, with a peak for rates expected in June.

Among other stocks, Tesla Inc (TSLA.O) plummeted 6.84% after the electric-car maker said it will recall vehicles in the United States over an issue that may cause tail lights to intermittently fail to illuminate.

Gay dating app Grindr (GRND.N) tumbled 46.00% amid a broader market weakness, after skyrocketing in its debut on the New York Stock Exchange in the previous session.

Declining issues outnumbered advancing ones on the NYSE by a 1.27-to-1 ratio; on Nasdaq, a 1.60-to-1 ratio favored decliners.

The S&P 500 posted 9 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 96 new highs and 220 new lows.

Reporting by Carolina Mandl, in New York, Ankika Biswas, Shubham Batra and Shreyashi Sanyal in Bengaluru; Editing by Arun Koyyur, Shounak Dasgupta and Grant McCool

Our Standards: The Thomson Reuters Trust Principles.

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Technology

India blocks Krafton’s game under law it has used to ban China apps-source

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A Google sign is pictured outside the Google office in Berlin, Germany, August 31, 2021. REUTERS/Annegret Hilse/File Photo

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NEW DELHI, July 29 (Reuters) – India blocked a popular battle-royale format game from Krafton Inc (259960.KS), a South Korean company backed by China’s Tencent (0700.HK), using a law it has invoked since 2020 to ban Chinese apps on national security concerns, a source said.

Battlegrounds Mobile India (BGMI) was removed from Alphabet Inc’s (GOOGL.O) Google Play Store and Apple Inc’s (AAPL.O) App Store as of Thursday evening in India.

The removal of BGMI, which had more than 100 million users in India, comes after India’s 2020 ban of another Krafton title, PlayerUnknown’s Battlegrounds (PUBG).

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The PUBG crackdown was part of New Delhi’s ban of more than 100 mobile apps of Chinese origins, following a months-long border standoff between the nuclear-armed rivals.

The ban has expanded since to cover more than 300 apps, including popular gaming app ‘Free Fire’, owned by Singapore’s technology group Sea Ltd (SE.N).

Tencent held a 13.5% stake in Krafton as of end-March through an investment vehicle, according to Krafton’s regulatory filing.

Krafton shares slumped more than 9% on the news on Friday, later paring losses to trade down 4.5% as of afternoon trade in Seoul. The company said in May India accounted for a high single digit percentage of its revenue in the first quarter of this year.

A Google spokesperson said it blocked the game following a government directive, while India’s IT ministry and Apple did not respond to requests for comment.

In Seoul, a Krafton spokesperson said the developer was talking to relevant authorities and companies to figure out the exact situation regarding the suspension in the two major app stores in India.

“The government does not intervene in which apps can function and which cannot. They intervene in digital security and privacy concerns, and BGMI complies with all guidelines. MeitY (Ministry of Electronics and Information Technology) has also noted that PUBG and BGMI are different games,” Krafton’s India CEO Sean Hyunil Sohn told news portal TechCrunch earlier this week.

‘CHINA INFLUENCE’

India invoked a section of its IT law to impose the ban, the source, who had direct knowledge but declined to be identified due to the sensitivity of the matter, told Reuters.

Section 69A of India’s IT law allows the government to block public access to content in the interest of national security, among other reasons. Orders issued under the section are generally confidential in nature.

Swadeshi Jagran Manch (SJM) and non-profit Prahar had repeatedly asked the government to investigate “China influence” of BGMI, Prahar president Abhay Mishra said. SJM is the economic wing of the Rashtriya Swayamsevak Sangh, an influential Hindu nationalist group close to Prime Minister Narendra Modi’s ruling party.

“In the so-called new avatar, the BGMI was no different from erstwhile PUBG with Tencent still controlling it in the background,” Mishra said.

The ban elicited strong online reactions from popular gamers in India on Twitter and YouTube.

“I hope our government understands that thousands of esports athletes and content creators and their life is dependent on BGMI,” tweeted Abhijeet Andhare, a Twitter user with more than 92,000 followers.

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Reporting by Aditya Kalra and Munsif Vengattil in New Delhi, Joyce Lee in Seoul; Additional reporting by Nupur Anand; Editing by Kirsten Donovan, Clarence Fernandez and Muralikumar Anantharaman

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US

Taser maker halts drone project; most of its ethics panel resigns

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The headquarters for Axon Enterprise Inc, formerly Taser International, is seen in Scottsdale, Aizona, U.S., May 17, 2017. Picture taken May 17, 2017. To match Special Report USA-TASER/EXPERTS REUTERS/Ricardo Arduengo

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June 5 (Reuters) – Taser-maker Axon Enterprise Inc (AXON.O) said on Sunday it was halting work on a project to equip drones with stun guns to combat mass shootings, a prospect that a member of its AI ethics board told Reuters was prompting an exodus from the panel.

The May 24 school shooting in Uvalde, Texas, which killed 19 children and two teachers, prompted an announcement by Axon last week that it was working on a drone that could be operated remotely by first-responders to fire a Taser at a target about 40 feet (12 m) away.

“In light of feedback, we are pausing work on this project and refocusing to further engage with key constituencies to fully explore the best path forward,” Chief Executive Rick Smith said in a statement on Sunday.

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Earlier, ethics board member Wael Abd-Almageed told Reuters he and eight colleagues were resigning from the 12-member panel, in a rare public rebuke by one of the watchdog groups that some companies have set up in recent years.

The aim behind such groups is to gather feedback on emerging technologies, such as drones and artificial intelligence (AI) software.

Smith said it was unfortunate that some members “have chosen to withdraw from directly engaging on these issues before we heard or had a chance to address their technical questions.”

He said Axon “will continue to seek diverse perspectives to challenge our thinking and help guide other technology options that we should be considering.”

Axon, which also sells body-worn cameras and policing software, said in February that its clients include about 17,000 out of the roughly 18,000 law enforcement agencies in the United States.

It has explored the idea of a Taser-equipped drone for police since at least 2016, and Smith depicted how one could stop an active shooter in a graphic novel he wrote.

The company first approached its ethics board more than a year ago about running a limited police pilot with Taser-equipped drones, which members voted eight to four against, said Abd-Almageed, an engineering research associate professor at University of Southern California.

Axon last Thursday announced it was working on the technology anyway, hoping to spur discussion after the Uvalde shooting. read more Its shares rose nearly 6% on the announcement.

“In the aftermath of these events, we get stuck in fruitless debates” about guns, Smith said. “We need new and better solutions.”

Ethics board members had concerns that the system could be used in circumstances beyond shootings and exacerbate racial injustice, undermine privacy through surveillance and become more lethal if other weapons were added, Abd-Almageed said.

“What we have right now is just dangerous and irresponsible, and it’s not very well thought of and it will have negative societal consequences,” he said.

Fellow member Mecole Jordan-McBride, advocacy director at New York University law school’s Policing Project, last week said that the board needed more time to weigh the idea. The board had not evaluated non-police use of the drones, it said.

Formed in 2018, the panel has guided Axon productively on sensitive technologies such as facial recognition. But the company’s drone announcement prior to a formal report by the board broke with practice, according to Jordan-McBride and fellow member Ryan Calo, a University of Washington law professor.

Chair Barry Friedman was resigning as well, said Abd-Almageed. Friedman, reached by telephone, said he would be available to comment on Monday.

CEO Smith acknowledged limitations and uncertainties around the project, noting a drone without a Taser may be enough on its own to distract a shooter.

In response to questions on the social media service Reddit on Friday, Smith wrote that drones could be stationed in hallways and move into rooms through special vents. A drone system would cost a school about $1,000 annually, he said.

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Reporting by Jeffrey Dastin in Palo Alto, Calif., and Paresh Dave in Oakland, Calif.; Editing by Clarence Fernandez, Robert Birsel

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US

U.S. accuses casino tycoon Wynn of acting as Chinese agent

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WASHINGTON, May 17 (Reuters) – The U.S. Justice Department on Tuesday sued Steve Wynn, the former CEO of Wynn Resorts (WYNN.O), to compel him to register as an agent of China and accused him of lobbying then-President Donald Trump at Beijing’s behest in 2017.

Wynn’s lawyers denied the allegations, saying he had never acted as an agent of the Chinese government and “had no obligation to register under the Foreign Agents Registration Act” (FARA).

From at least June through August 2017, Wynn contacted Trump and members of his administration to convey a Chinese request that Trump cancel the visa of a Chinese businessperson who had sought asylum in the United States, the department said.

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The department’s civil suit alleges it had advised Wynn in 2018, 2021 and April 2022 to register as an agent of China under FARA but he declined to do so. Wynn stepped down as Wynn Resorts CEO in early 2018.

“Where a foreign government uses an American as its agent to influence policy decisions in the United States, FARA gives the American people a right to know,” said Matthew G. Olsen, assistant attorney general for the department’s national security division.

Steve Wynn, Chairman and CEO of Wynn Resorts, speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2017. REUTERS/Mike Blake

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The suit was filed in the U.S. District Court for the District of Columbia. It seeks a declaratory judgment that Wynn has an obligation to register under FARA.

Wynn’s lawyers, Reid Weingarten and Brian Heberlig, said they disagreed with the department’s legal interpretation of FARA and looked forward to proving their case in court.

In a statement, the Justice Department alleged that Wynn acted at Beijing’s request “out of a desire to protect his business interests in Macau,” where Wynn Resorts operates a luxury hotel and casino.

Wynn conveyed the requests to cancel the businessperson’s visa to the Trump administration on behalf of Sun Lijun, a former vice minister in China’s Ministry of Public Security, the statement said.

It did not name the Chinese businessperson in question, but said the individual left China in 2014 and was later charged with corruption by Beijing.

Wynn conveyed Beijing’s request to Trump over dinner and by phone, and had multiple discussions with senior White House and National Security Council officials about organizing a meeting with Sun and other Chinese officials, the department said.

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Reporting by Rami Ayyub; Editing by Tim Ahmann and Howard Goller

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Business

Wynn finds an ace in $1.7 bln property sale

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The Encore Casino, built by Wynn Resorts, stands beside the Mystic River in Everett, Massachusetts, U.S., April 1, 2019. REUTERS/Brian Snyder

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HONG KONG, Feb 16 (Reuters Breakingviews) – Wynn Resorts’ (WYNN.O) boss Craig Billings has been dealt a tough hand. Covid-19 is slamming its business in Macau, and new ventures read more need cash. Net debt is already at $9.4 billion, more than 16 times 2021 EBITDA. So selling its Encore Boston Harbour property to raise funds and becoming a tenant makes sense.

As part of the deal, Wynn will offload the real estate for $1.7 billion in cash. The casino has also agreed to an initial annual rent of $100 million and a 30-year term. That works out to a cap rate, or the rental yield that the buyer collects, of 5.9% – in line with a similar leaseback deal in 2019 between MGM International Resorts and Blackstone (BX.N) for the iconic Bellagio estate in Las Vegas.

To compare, Wynn’s weighted average cost of capital is 9.2%, Morningstar analysts estimate. And the business it operates in Encore Boston, which opened just before the pandemic, should be a relatively stable and predictable revenue generator for the company. Tuesday’s results show it earned $68 million EBITDA in the fourth quarter alone. The odds look appealing. (By Katrina Hamlin)

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Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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Business

Billions blown as Macau casino investors fold amid gambling review

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  • Wynn Macau drops as much as 1/3rd; Sands China skids 28%
  • Shares dive as HK market roiled by Beijing crackdown
  • Slide after announcement of 45-day consultation on licences
  • Consultation to discuss terms, govt involvement
  • J.P. Morgan downgrades all Macau casino stocks

HONG KONG, Sept 15 (Reuters) – Shares of Macau casino operators plummeted as much as a third on Wednesday, losing about $18 billion in value, as the government kicked off a regulatory overhaul that could see its officials supervising companies in the world’s largest gambling hub.

With Macau’s lucrative casino licences up for rebidding next year, the plan spooked a Hong Kong market already deep in the red after Beijing’s regulatory crackdown on sectors from technology to education and property that sliced hundreds of billions of dollars off asset values.

Wynn Macau (1128.HK) led the plunge, falling as much as 34% to a record low, followed by a 28% tumble for Sands China (1928.HK). Peers MGM China (2282.HK), Galaxy Entertainment (0027.HK), SJM (0880.HK) and Melco Entertainment (0200.HK) all fell heavily, taking the drop to HK$143 billion ($18 billion).

Shares of U.S. casino companies were set for a second straight day of losses, with Las Vegas Sands Corp (LVS.N), Wynn Resorts Ltd (WYNN.O) and MGM Resorts International (MGM.N), dropping 2% to 5% in premarket trading.

The slump came after Lei Wai Nong, Macau’s secretary for economy and finance, gave notice on Tuesday of a 45-day consultation period on the gambling industry to begin from the following day, pointing to deficiencies in industry supervision.

Beijing, increasingly wary of Macau’s acute reliance on gambling, has not yet said how the licence rebidding process will be judged.

Some Hong Kong stock analysts wasted little time in downgrading their view of near-term prospects for casino operators in the Chinese special administrative region, who must all rebid for licences when current permits expire in June 2022.

J.P. Morgan is downgrading to neutral or underweight all Macau gaming names from overweight, because of the tougher scrutiny on capital management and daily operations ahead of licence renewals, said analyst D.S. Kim.

“We admit it’s only a ‘directional’ signal, while the level of actual regulation or execution still remains a moot point,” he said, adding the news would have already put doubt in investors’ minds.

Brokerage CFRA downgraded Wynn Resorts to “Strong Sell” from “Buy”, citing heightened regulatory risks and said the review was a major overhang for the company as well as other operators.

TIGHTER REGULATION

A woman rest next to the decoration inside the Wynn Palace casino resort in Macau, China December 20, 2019, on the 20th anniversary of the former Portuguese colony’s return to China. REUTERS/Jason Lee

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At a news briefing on Tuesday, Lei detailed nine areas for the consultation, such as the number of licenses, better regulation and employee welfare, as well as having government representatives to supervise daily casino operations. read more

The government also plans to increase voting shares in gaming concessionaires for permanent residents of Macau, as well as more rules on transfer and distribution of profits to shareholders.

Discussions over the future of Macau’s casino licences come amid rocky U.S.-China relations, leaving some investors fearing an edge for domestic players over U.S.-based casino operators.

The government has not singled out any U.S. players, but companies have moved to beef up the presence of Chinese or local executives as they position themselves more as Macau operators than foreign one.

Before licence expiry, operators have tried to strengthen corporate responsibility and diversify into non-gaming offerings to placate Beijing, which fears over-reliance on gambling.

Macau has boosted scrutiny of casinos in recent years, clamping down on illicit capital flows from mainland China and targeting underground lending and illegal cash transfers.

Beijing has also stepped up a war on cross-border flows of funds for gambling, hitting the funding of Macau’s junket operators and their VIP customers.

In June, Macau more than doubled the number of gaming inspectors and restructured departments to boost supervision. read more

George Choi, a Citigroup analyst in Hong Kong, said while the public consultation document gave few details, the suggested changes benefit long-term sustainable growth, with “positive implications on the six casino operators”.

However, he cautioned, “We will not be surprised if the market focuses only on the potentially negative implications, given the weak investor sentiment.”

The consultation comes as Macau has struggled with a dearth of travellers because of coronavirus curbs since the start of 2020. While gambling revenues have picked up in recent months, they remain less than half of 2019 monthly figures.

($1=7.7785 Hong Kong dollars)

Additional reporting by Donny Kwok and Shreyasee Raj; Editing by Anne Marie Roantree and Clarence Fernandez

Our Standards: The Thomson Reuters Trust Principles.

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