As global economies improve, consumers will spend more on luxury items, travelling and entertainment.
So clients may benefit from getting exposure to those industries, says David Winters, CEO of Wintergreen Advisors in Milwaukee, WI.
When investing in entertainment businesses, he adds, we look for opportunities all around the world. In the U.S., for example, “gaming used to occur primarily in Las Vegas but there are now facilities all over the country.”
Still, “business [in America] isn’t as good as it used to be. Instead, the best places in the world to [invest] in gaming are in the Middle East, which is why we’re interested in regions such as Macau,” a Chinese territory that lies east of Hong Kong.
The pillars of Macau’s economy are gambling, tourism and manufacturing, and it became one of the world’s richest regions in the early 2000s. As well, Macau’s been a major global gambling center since 2006 when its revenue surpassed that of Las Vegas, according to Chinese government analysts at the time.
You can get returns in the U.S., explains Winters, but prospects are better in Asia. “The future [there] is bright even though there will be bumps along the way…People there want to have the quality of life that people in Canada and the U.S. have, and they’re willing to work hard for it.”
As a result, Asia’s gaming and entertainment industries will benefit. In coming years, Winters expects more people will travel to places such as Macau when they have money to spend.
In terms of gambling regulations, he adds, the Chinese government makes sure casinos are run properly by requiring companies to document their flows of funds.
“It’s in everyone’s best interests that Macau is well run,” says Winters. “There’s a tremendous amount of money at stake for the casino operators, as well as for the government since it receives about 40% of the profits. Macau’s been a huge success since gaming is part of the Chinese culture.”
Over time, “the Chinese government has tried to centralize gaming in one location, which is Macau. This way, [it] doesn’t end with gaming in places [it] doesn’t want.”
Still, officials have moved to restrict the number of days people can spend in Macau, says Winters, and they also want to restrict the use of China Union Co. debit cards at casinos—with these cards, visitors have been able to buy large items from on-site pawn shops that they can then exchange for cash.
Both measures have been introduced to “pull in the reins and make sure things are tightly run,” says Winters. Overall, though, “Macau is well positioned, and it will continue to act as a pressure-release valve for China.”
When looking to invest in entertainment companies, he suggests, you need to search for risk-averse businesses that have conservative balance sheets and excellent management. As well, boards of directors should be shareholder-oriented.
Investors can gain exposure to Asia’s gaming industry, he adds, either through direct investments in Asia, or through indirect investment in trade partners such as Switzerland and Canada.