Shares of Macau casino operators jumped the most in six years on Monday after officials in the gaming city introduced less harsh than expected rules, removing a lot of uncertainty that could increase the sector's valuation.
Last Friday, Macau gaming officials proposed measures that would limit gaming licenses to six, and the duration of the license would be shortened to 10 years from 20. Initially, investors feared the licenses would only be five years.
The rules reduce the extension periods on licenses and increase domestic ownership of casinos to 15% from 10%.
Also, the tax rate of casinos would stay the same and would not require a government official to sit on the company's board. The rule lifts a massive overhang for casino stocks that have been trashed over the past year.
On Monday, casino shares listed in Hong Kong jumped as much as 12%, the most significant daily increase in six years. Wynn Macau Ltd., Sands China Ltd., and Galaxy Entertainment Group Ltd were some of the largest movers on the session.
Citigroup analyst George Choi wrote in a note to clients that gaming law revisions will "remove most investors' key concerns, i.e., dividends, government oversight, minimum shareholding by a Macau permanent resident, gaming tax, etc." He expects the sector's multiple to "re-rate significantly from the current levels."
Choi wrote that potential border reopening would add more positivity to the sector's valuation.
Goldman Sachs also favors Macau gaming stocks after the index has been halved over the last year.
It seems like some notable research desks are willing to catch the falling knife in Macau gaming stocks. Some other positive news is that the People's Bank of China slashed interest rates that could soon add liquidity to markets. Investors are also trying to catch the falling knife in Chinese technology stocks.