In a Tuesday note, Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Thomas Allen noted a number of similarities between now and then, with the current market cap of US$58 billion only just above the US$53 billion seen in January 2016 – to this day the lowest it has been since mid-2011. That 2016 level followed the imposition of Chinese President Xi Jinping’s ant-graft crackdown, which dealt a huge blow to Macau’s previously dominant VIP sector.

“GGR growth in 2022 should drive outperformance like 2016,” the analysts said. “Macau stocks’ market cap bottomed in January 2016, roughly 12 months after GGR growth year-on-year bottomed at -50% in early 2015. But by January 2016, GGR growth rate was -20% and it was visible at that time that year-on-year would turn positive sometime in the later part of 2016. This drove a material stock price rebound of 26% year-on-year in 2016.

“We see a similar trend in 2022, where year-on-year growth will accelerate even though it’s still at a lower level than 2019. This should drive outperformance in 2022.”

Morgan Stanley noted that Macau gaming stocks have been underperforming the Hang Seng Index for the last two years, dragged down by COVID and regulatory overhang, but that the sector has never underperformed the index for more than two consecutive years.

Instead, the analysts list a number of key reasons to expect outperformance by gaming stocks, among them license renewal clarity, the new Gaming Law being drafted and the law finally passing the Macau Legislative Assembly.

“Each of these events will provide clarity even if the Macau Chief Executive temporarily extends the licenses beyond June 2022, which we expect could be announced by in 1Q22,” they write.

They also tip a 41% year-on-year improvement in GGR, which will in turn drive stock price recovery. The analysts name Melco Resorts and Galaxy Entertainment Group as their top picks.

By Ben Blaschke