Toward the end of last month, shares of Macau casinos climbed sharply following the People’s Bank of China (PBOC) lowering interest rates and Beijing revealing new stimulus initiatives aimed at specific groups within the Chinese populace. 

Earlier this week, those same gaming stocks, along with other Chinese shares, declined after the National Development and Reform Commission (NDRC) did not provide updates on new stimulus, disheartening market players as a result. Nevertheless, certain analysts think it’s only a matter of time until Beijing announces additional cash aid for citizens, potentially lifting Macau casino stocks. 

In a recent report, Nomura analysts Ting Lu, Jing Wang, and Harrington Zhang indicated that it falls outside the NDRC’s authority to unveil stimulus initiatives, and the following decline in Chinese stocks could be considered beneficial.

"The corrections in stock markets may not be a bad thing as, in our view, preventing a stock mania and crash is a precondition to successfully jump-start China’s economy,” observed the analysts.

The analysts noted that China’s Finance Ministry is set to hold a press event on October 12, where additional economic incentives may be revealed. 

The Importance of Stimulus for Macau Casino Stocks 

The initial set of stimulus actions revealed by Beijing boosted Macau gaming stocks, yet there are other factors that could lead the industry to gain from further support. 

“Much of this incoming fiscal stimulus will likely be used solely to fill the fiscal gap faced by local governments. We believe the content of stimulus matters more than its size, as Beijing will have to clean up the mess created by the housing crisis and revamp its fiscal system, as local governments might no longer be able to collect massive revenue from land sale,” added the Nomura analysts.

Pertinent to the gaming environment in Macau and the broader Chinese economy is the notion that numerous market analysts think Beijing should increase its efforts in providing financial assistance to its citizens, emphasizing that the initial distributions should occur first rather than being seen as the final measure. Additional support may come when Macau stocks, such as Wynn Resorts (NASDAQ: WYNN), the parent company of Wynn Macau, are significantly undervalued. 

“WYNN’s valuation is also attractive and trades below its historical averages at around 8.5x forward EBITDA estimates, which we believe minimizes the risk to the downside in the event that growth for the global economy slows,” wrote CFRA analyst Zachary Warring in a note.

Upcoming Round of Stimulus Might Be Substantial 

If Beijing proceeds with the September economic stimulus program, it will likely be more substantial than what was revealed last month. Nomura projects that the figure could reach as much as $283 billion, possibly even higher.

"The actual stimulus would likely be larger than that, as Beijing may tap funding from the People’s Bank of China and the three policy banks to address the debt overhang, especially as it relates to the delayed delivery of pre-sold homes in the property sector,” according to the analysts.

If cash flow directly reaches the hands of middle- and upper-middle-class citizens in China, it could greatly benefit Macau casino stocks.