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Macau casino rally over-hyped: analysts

Analysts are advising investors to wait for more evidence of a sustained gaming upturn before buying Macau casino stocks, Bloomberg reports.

Pictet Asset Management’s Pauline Dan believes valuations are too high relative to earnings prospects.

“I would continue to be cautious,” said Dan, the Hong Kong-based head of Greater China equities at Pictet. “From a valuations perspective, it’s hard to make a bullish case."

In July, gross gaming revenue in Macau fell 4.5 percent in July, according to data from the Gaming Inspection and Coordination Bureau. While that was better than the consensus of a 5.5 percent drop, it marked the 26th straight month of decline for the casino hub.

Toshihiko Takamoto, a Singapore-based portfolio manager at Diam said casino stocks are unlikely to be a one-way bet and maintains a cautious stance after investors were “repeatedly disappointed” by signs of a recovery.

In the past, casino stocks rallied only to retreat after a turnaround to Macau’s two-year gambling downturn grew elusive. The latest signs of improvement come amid the opening of the $4.1 billion Wynn Palace scheduled to open August 22, while Sands China’s $2.7 billion Parisian project is set to open September 13.

Phillip Capital Management’s Louis Wong said stocks have room to rise further as a crackdown on mainland officials wanes and the new projects bring in more mass-market gamblers.

"Around 10 percent upside is possible from now," said Wong. "The number of arrests of Chinese officials decreased quite substantially since the second half of last year. There is a correlation between the VIP sector and the crackdown on corruption."

A gauge of Macau casino operators has jumped 14 percent from a low on June 28, outstripping the 9.7 percent advance in Hong Kong’s Hang Seng Index, according to Bloomberg.

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