It’s about that time of the month again where we talk about China… More specifically, today I want to discuss everything wrong with China’s new casino crackdowns.
One of the biggest profit centers for China’s domestic economy is gambling. Macau is the only city there where China’s high-rollers can legally gamble — making it the only accessible gambling hot spot in the country.
This has led to Macau being six times more profitable than all of the casinos in Las Vegas combined, dwarfing them in terms of revenue.
Macau’s casino operations also allocate nearly 80% of the local government’s tax revenue.
This week, the Chinese government announced that it’s revising gambling laws to gain more control and local ownership in casinos.
Everything Wrong with China’s Casino Crackdown
Once again, the government is acting unilaterally and unpredictably, without any rhyme or reason to defend its actions — which is everything that investors despise.
The Chinese government basically said too many people were gambling in Macau in casinos with not enough organized — meaning government — control. It wants to increase direct supervision of gambling companies in order to get more control over money laundering and currency outflows.
The government plans on going through a 45-day process of reviewing all of the Macau casino companies’ licenses — a company’s ability to create revenue — and decide afterward whether each will be issued another one.
Do you want to be an investor in a country whose government can just wake up one day and decide to destroy an entire industry in order to keep the state in ultimate control?
I mean, do you ask a person to marry you when they act like they love you one day and the next day they hate you? Again, NO.
You want to be convinced that this person is going to stay with you until death do you part, and that’s how long-term investing is.
China is simply not the place you want to turn to for long-term investing.
Now the question is how all of these Chinese casinos will be able to generate any type of revenue without a license. The quick answer to that is they won’t.
But luckily, I’ve been ahead of this trade for a long time now and saw this coming a mile away.
Right now, I have a swing trade going short in MGM Resorts International (NYSE: MGM) for two reasons: exposure to China and brick and mortar casinos.
My long trade is in DraftKings Inc. (Nasdaq: DKNG), the online sports betting company that’s currently exploding in popularity and has minimal exposure to China.
And apparently, WealthPress Senior Strategist Roger Scott also has a lot to say about this casino trade and the China casino crackdown as well…
Learn more about China’s casino crackdown and other low-hanging fruit by watching our video below!
As always, send any trading questions to firstname.lastname@example.org and stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel.