6 min read

Asia Tea Time - Cup 10 ☕

This week, I cover news on Macau casinos, Singapore's biggest bank DBS, and Jack Ma.

Macro in Asia

Macau casinos feel the love as Chinese tourists travel in force

China’s “Golden Week” holiday – that takes in the Labour Day holiday – saw crowds return en masse to the southern Chinese gambling hub of Macau.

Nearly 500,000 visitors (over 85% of them from Mainland China) descended on Macau between 29 April and 3 May, surpassing all forecasts.

Why it’s happening

  • Don’t know about you but it’s probably natural for any human to want to travel after being stuck in a country that went through Covid-19 lockdowns for nearly three years.
  • Macau is just a microcosm of the revenge travel on display – data show that sales of overseas flights in China were eight times higher during this Labour Day holiday versus last year.
  • Understandably, you want to stay close to your hood (i.e. in Asia) if you’re heading to another country post-Covid.
  • Macau’s one of the top destinations. Why? It has a large array of gratuitously-sized integrated resorts (IRs) that have casinos – making it the only place in China that allows you to gamble money legally.

Why it matters

  • Macau’s casino stocks have had a rough time. The pandemic and travel restrictions effectively torpedoed their in-person-dependent businesses.
  • The most recent April numbers for gross gaming revenue (GGR) – basically a term for how much casinos are fleecing from gamblers – were super positive though, up a whopping 450% year-on-year to 14.7 billion Macau patacas (US$1.8 billion).
  • That was the highest monthly total since January 2020. Seems like gambling illegally online in China (with a patchy VPN) just isn’t all that fun.

What’s next?

  • GGR numbers for May will be watched closely to see how concrete this visitor recovery is but the casino giants probably can’t wait to be reporting their Q2 2023 numbers, which should highlight a huge recovery.

Tim’s Take

  • The recovery in Macau’s visitor numbers is no doubt extraordinary but the issue with stock markets is that they’re forward-looking.
  • On the news of April GGR and visitor numbers for the Labour Day holiday, casino stocks in Hong Kong didn’t actually move all that much.
  • That’s because some – like Sands China (SEHK: 1928), MGM China (SEHK: 2282), and Wynn Macau (SEHK: 1128) – have rallied hard and are up as much 120% over the past six months.
  • So, as soon as China dropped Covid restrictions, investors piled into casino names in anticipation of the travel recovery.
Longer term, Macau casino stocks are still facing a major issue; President Xi Jinping.

He’s the guy who crushed the industry in 2014 with his anti-corruption drive that targeted a lot of Macau’s high-rollers (who coincidentally also happened to be Chinese government officials).

Xi’s “common prosperity” dream just doesn’t seem to fit in with what Macau’s casino firms are selling to consumers, does it?

As a result, long-term money can’t confidently be invested in the sector and in my eyes, it’s more just a momentum trade for short-term investors.

Company spotlight

Singapore’s biggest bank DBS posts a record profit

DBS Group (SGX: D05), Singapore’s biggest bank, delivered record profits in its latest Q1 2023 earnings results, with net profit up 43% year-on-year to S$2.57 billion.

Despite that, shares of the bank fell nearly 3% this week.

Why’s it news?

  • Banks in Singapore have been declaring their latest numbers to show people that some banks (unlike others) can actually responsibly manage interest rate hikes.
  • The Federal Reserve’s Mr Powell was also in the news this week as he seemed pretty chill in the face of the US regional bank meltdown and raised interest rates a further 0.25%.

Why it matters

  • Banks should – technically – earn more profits when interest rates rise because they can lend it out at higher interest rates versus the interest rate they pay out to suckers like us (depositors).
  • That’s been the case for a lot of Asian-focused banks that have been reporting impressive profits this week, including that big ol’ giant HSBC Holdings (SEHK: 5).
  • But with the Fed set to hit “pause” on rate hikes, after the latest one, even investors in Asia are getting antsy on where local bank shares are headed next.

What’s next?

  • As much as we hate it, what happens in the US does impact us in Asia. And when it comes to the dumpster fire that is US regional banks, it’s been destroying investor sentiment for anything financial-related (which is basically everything). With First Republic the latest US bank to bite the dust, how this plays out over the next few weeks and months will be critical.

Tim’s Take

  • DBS has always been a strong franchise, proving it this week with some stellar numbers. It also benefitted from people scared about what’s going on in the US.
  • What do you do with your funds when you’re not sure about how solvent general banks are? You park it with the big boys.
  • That’s a trend you’re seeing benefit the likes of JPMorgan in the US and, in our own backyard, the likes of DBS and its Singaporean peers UOB (SGX: U11) and OCBC (SGX: O39).
  • There’s been a host of analyst downgrades on the latest results from DBS. I mean even DBS CEO Piyush Gupta noted that its net interest margin (NIM) – the difference between the rate they lend at and the rate they pay interest on – likely peaked in Q1 2023.
What the market is expecting, though, is for interest rate cuts from the Fed to come as soon as the second half of 2023. That obviously would be bad for banks’ short-term profits.

But with so many people saying “this is going to happen”, it does make you wonder whether the opposite will play out. In that case, Singapore’s bank shares could be a contrarian way for investors to play the “higher for longer” theme on rates.

And to wait, you also get a 5% dividend yield. Doesn’t sound too shabby, at least for investors of bank shares in this environment.

Tim’s money tip of the week

We’re living in uncertain times right now. So, with a likely global recession on the horizon, it’s worth thinking about worst-case scenarios.

I know, it’s not exactly fun pondering this stuff but we do have to plan ahead!

In that vein, we should always have an emergency fund (in cash) that is worth at least 6-12 months’ of our monthly expenses.

By having that cash buffer there – in case of unforeseen events like redundancy or medical emergencies – we don’t need to sell any of our investments when the markets are down. Goes without saying but that’s not an ideal time to sell!

So, if you think you’re more conservative you can lean towards having a full year in cash but six months is certainly the minimum.

Story of the week

So, Jack Ma popped up on everyone’s radar again a few months ago just before Alibaba announced a six-way split.

Prior to that, he was effectively persona non grata in China for over two years since he threw shade at Chinese banks and the regulatory system.

Now it’s been revealed this week that he’s a visiting professor in Japan…it’s amusing that Jack Ma is an adviser to researchers at Tokyo College, University of Tokyo on “sustainable agriculture and production”.

Looks like he’s been tamed by his time in the wilderness and perhaps he’s now feeling comfortable to come back into the public eye now that China’s tech companies have been brought to heel by the government. Interesting times.