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There Is Potential To Be Found In The Market Vector Gaming ETF

Summary Revenue is a bit of an issue for casinos in the Macau region. This casino ETF has been hit hard and is currently floating around it’s 52 week low. Nevertheless, a high roller will always find it’s way back to the table and I’m not expecting this drop in share price to continue forever. The Market Vector Gaming ETF offers potential for many investors. Casinos; one loves them, the other hates them. It is a sector which is unquestionably linked to big spenders and unlucky losers. Unfortunately the Market Vectors Gaming ETF (NYSEARCA: BJK ) is currently not a money maker, as this ETF is dribbling near its 52-week low. This article will further discuss the main setup of BJK and the casino industry as a whole. (click to enlarge) Source : Wikipedia The Main Holdings This ETF’s main holdings are all accustomed players in the casino industry. (click to enlarge) Source : Van Eck The majority of these stocks either have exposure to Las Vegas and/or Macau as they are the 2 largest casino markets in the world. The Role of Macau Over the years, Macau, a former Portuguese colony and a city under the ‘ one country two systems ‘ policy by China, rose to become the Las Vegas of the East . It didn’t take long before it became the largest casino market in the world. As of today, more than 10% of Macau’s population is working in this specific market. Additionally, with Hong Kong only 37 miles away, Macau was positioned impeccably to grow out as a casino haven. And that is exactly what it did. (click to enlarge) Source : The Galaxy Macau Casino ETF – The Rise and Fall of Macau? The casino industry in Macau shares much resemblance of a typical rise and fall story : after the state casino monopoly ended in 2002, Las Vegas entered the market with American courage. It was big money, large risk and even bigger profits. For example, the current revenue of Macau’s casino industry is 7 fold of what is currently being brought into Las Vegas. And this is not simply because of more customers; it’s also due to large spenders. Unfortunately, casino revenues have fallen sharply in Macau by almost more than 50% year over year due to a variety of reasons. Reasons such as the slowing down economy in China and Chinese officials trying to track down potential corruption in the safe haven of Macau. In other words, the campaign of China against corruption and the pursuit of anti-gambling campaigns have caused the VIP’s not to hit the tables like they used to do in the past. A high wealth official would not want to be seen on tables in one of the Macau casinos, and with China’s politicians firing up the heat, who can blame them? Furthermore, with the Chinese government focusing more on discretionary spending and Macau’s casino landscape shifting to more family friendly related casino services, the percentage of revenue obtained from high rollers is currently diminishing. This was Macau’s strength in the past. Casino ETF – Many potential threats harming the casino industry All these factors such as tighter visa laws , more control on credit conditions, a potential smoking ban and restrictions on certain card payments is all harming profitability in one way or another. In my view, this will harm revenue’s for at least up to 2016. Additionally, in the pipeline there a number of new casinos which will open and this will spread volume and potentially diminish overall customers per casino. A typical case of wrong expectations between supply (of customers) and demand (the casinos). So considering the Casino market is going through some severe changes, how does the setup of this ETF look like? Market Vectors Gaming Fundamentals This ETF mostly tracks companies which generate more than half of their revenue from casino’s in one way or another. Net assets is somewhere around 30 million which is not incredibly large. (click to enlarge) Source : Van Eck With volume of around 20.000 a day, this ETF is not particularly liquid, but liquid enough for any small time investor to acquire a position and sell it relatively easily without having to suffer immensely in a bid-ask spread. Furthermore BJK paid a 2014 dividend of $1.88, giving the ETF a trailing 12-month yield of nearly 5%. Summary An investment in this ETF is a bet on the growing consumer wealth of China being spread out like butter on a piece of bread. Eventually the sheer volume of spending in the gambling industry will continue to grow; at least that’s my view for now. Will the super-rich return to Macau? My thoughts are that the investigation into further corruption is far from over, and as always, might take a while before a potential end is in sight. This will be a process which will last years, not months. Whether or not you pursue more tight regulation and control, high rollers will always find a way to invest their money in a different casino, whether that’s onsite or online makes no difference. Price Trend As share price has diminished significantly in the casino sector with the overall PE still declining from its highs at $35 to now averaging between $10-15, there is still room to fall. The short float is clearly rising (on anticipation…) even though the overall profitability is still substantial. Furthermore, debt remains an issue. So where does that leave us? Conclusion Macau might bleed, but the casino industry is far from over. Anywhere near $30 and this ETF become very interesting. As the super-rich become wealthier, they might cancel a trip to a casino, but they will find their way into any sort of casino, obviously picked up by any of the firms in this ETF. I’m not expecting casino stocks to drop to single digit values even though the graphs indicate significant drops over the last few months; they still bring in large substantial amounts of revenue. My expectation is that a potential short squeeze with positive news out of the casino market will propel this ETF (and many of its holdings) upwards. The main reason why my focus is on this ETF rather than the individual holdings is because I am sure not every firm will be as successful trying to fight its way through all the new regulations and tighter control. This ETF diminishes that risk. The potential is certainly out there. The numbers back the story. On an additional note For a more Macau related investment, one should look into Melco Crown Entertainment Limited (NASDAQ: MPEL ). They have recently invested in the Philippines , only a 2 hour flight from Macau and close enough for any high roller wanting to come from Hong Kong. This new strategy is very promising and I assume it will be very fruitful for Melco’s business. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

The Case For Considering The Australian Equity Market

Summary Australia had record high business confidence on low AUD and consumption boost. Labor market continued to grow in a sustained manner along with the housing and credit markets. This might be the time to buy into Australian equities as both internal and external conditions merged to form bullish condition. Australia might be iconic to the average Americans as the land of the kangaroos but it has more to offer than tourism. The Australian economy is on the steady path of recovery as seen in the record high of business confidence, recovering labor market and better credit condition. This represents a great opportunity to gain exposure to the Australian market for this recovery had been ongoing since the beginning of this year. Australia had been blessed with its proximity to the emerging Asia, strong reserves of minerals and other raw materials and a dovish central bank that cut rate twice this year as a precaution. As a result, the recovery in Australia took hold and through months of consistent performance, it is now deeply rooted as the latest May data would show. However the Australian stock market remains discounted as market confidence was shaken by the weaker than expected US and Chinese economic data. This is now changing as the US and Chinese economies are on the mend as seen in recent articles. Record High Business Confidence We shall first delve into the May survey of business sentiment as conducted by the National Australia Bank (NAB). Business confidence went up from +3 in April sharply to +7 in May as all business sector (except mining) had a better outlook on business conditions. This +7 reading of business confidence is the record high this year. Source: NAB Business conditions were lifted by the twin effects of the lower AUD and supportive budget released this year. The recent low 2% interest rates by the Reserve Bank of Australia (NYSE: RBA ) also helped in the credit conditions for the housing market and business lending. Consumption and consumer confidence have also staged a steady recovery. These conditions had led non mining businesses as a whole to revisit their reluctance towards capital expenditure and to invest for the future. The manufacturing industry led the recovery on the tailwinds of the lower AUD while the mining industry continued to contract on reduced Chinese demand. Forward looking indicators such as new orders are also pointing towards the right direction for future growth. The overall trend is clear towards greater business confidence for Australia. Strengthening Australian Labor Market The next piece of good news for the Australian economy is the improving labor market as reported by the Australian Bureau of Statistics ( ABS ) for May 2015. The major good news is that the Australian economy had added 42,000 new jobs in May and this is resulted in the lowering of the unemployment rate from 6.1% to 6.0%. (click to enlarge) The reduction of the mining sector had resulted in the net increase in Australian unemployment rate as seen in the chart above. However this had been largely reversed since January 2015. The improving economy had been able to absorb the increasing workers made redundant as mining companies cut back on production. This improvement is all the more remarkable because this reduction is done without any corresponding reduction in the overall employment rate as seen in the table below. In other words, the unemployment rate came down not because of more discouraged workers as was the case in the US 5 years back in 2010. The unemployment came down because the labor pool expanded and more people are now working. (click to enlarge) Source: ABS In fact, the labor participation rate crept up by 0.2% over a 1 year period as the labor pool expanded to 11.75 million and 64.7% of Australians are gainfully employed. This means that Australian have greater income as a whole and would naturally consume more in the future. Housing And Credit Market Lastly we can look at the status of the Australian housing market. Bubbles are formed when housing are purchased for the purpose of speculation instead of dwelling. This, along with lax credit conditions, is the root cause of the US housing bubble, which burst in 2007. The Australian regulators are mindful of this painful episode and they had recently cracked down on runaway housing prices especially on foreign purchase of property for ‘investment’ purposes. This has resulted in the majority of purchase being used for residential purposes. In May, out of $32 billion worth of housing commitments, $19 billion is for owner occupation while $13 billion is for the purpose of investment. In other words, a good 59% of new housing being built in Australia will be occupied by owners and they are not likely to bid prices up to excessive levels in hopes of flipping it for profit as soon as regulation permits. (click to enlarge) Source: ABS The strength of the Australian housing market can also be seen in the upwards momentum of both the value and number of housing commitment. This is supported by modest and sustained increase in loans as seen in the chart below. (click to enlarge) The chart shows that the credit market in Australia had been rising for 3 consecutive months in a row. Conclusion If we were to put the recent domestic conditions of better business confidence, labor condition, housing and credit market in May together with the recovering economic conditions in the 2 largest economy in the world, this would signal the path towards a sustained economic recovery for Australia is now under way. This would mean this current price of $22 might the low price for the iShares MSCI Australia ETF (NYSEARCA: EWA ) which is the broad based representation of the best of Australian equity. The conditions are ripe for the bottoming out of Australian equities as both internal and external conditions coincide for a strong and sustained economic recovery. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.