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Macau's VIP gaming segment shows signs of recovery, one expert says

Philippe Lopez | AFP | Getty Images

High-rollers are mustering up the courage to return to Macau casinos, while the mass market gaming segment continues to show momentum, a gaming expert told CNBC.

"After three years of the anti-corruption program in mainland China, some of what we would call the smaller VIP players are coming back to the market," said Grant Govertsen, managing director of Union Gaming, in an interview on "The Rundown."

"They're just feeling better about their own situation, and that they're not going to be caught up in the so called drag net," he explained.

China's anti-graft campaign is a centerpiece of President Xi Jinping's political agenda, and began early 2014 in an attempt to weed out corruption in the government with high stakes gambling identified as key target of probes.

The Chinese ruling party said at its annual parliamentary session held earlier in March that it had indicted nearly 300,000 officials in 2015 on corruption charges.

The special administrative region of Macau, which is the only place in China where casino gambling is legal, was hit particularly hard by the anti-graft crackdown.

But there has been a recovery for Macau's casino resorts, Govertsen said.

Several lavish new resorts have opened to boost demand especially in the mass market segment, Reuters reported. In November, Macau, also dubbed the "Las Vegas of Asia," saw gambling revenue jump 14.4 percent year-on-year.

"New casinos opened over the past few months, a ramp-up of marketing programs, and the government's push into mass market [suggest] that the segment will remain strong going into 2017," Govertsen said.

In the third-quarter this year, Sands China and Wynn Macau made risky bets amid a gambling slump to open multi-billion dollar casino resorts.

Morgan Stanley analysts also share the view that Macau's gaming cycle has turned, and raised its gross gaming revenue growth in 2017 to 10 percent from 2 percent, a December 15 report showed.

Macau's mass revenue is forecast to grow 14 percent in 2017, and 9 percent in 2018, while VIP growth is expected to advance 5 percent and 2 percent, respectively, Morgan Stanley analysts said.

But the casino industry in Macau is not without a host of challenges.

"Meaningful depreciation in the (yuan) against the dollar could hamper Macau spending per capita, affecting both VIP and premium mass, and also trigger more capital outflow control measures," said analysts at Morgan Stanley.

The dollar rally on Donald Trump's surprise presidential victory and after the Federal Reserve this month lifted interest rates for the first time in 2016, has weighed sharply on theyuan, which has fallen to a near 8-year low against the dollar.

Other risks include a furthering tightening of China's capital outflows. Earlier in December,Beijing slashed the amount of cash China UnionPay bank card holders can withdraw from ATM machines in Macau.

The move came after China's foreign exchange reserves fell in November for the fifth straight month, despite Beijing's attempts to control capital outflows.

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