Is Brean Capital’s Bet On Casinos in Macau A Hoax?

Genting Singapore PLC has 52.6% in gaming stocks with a value of USD$8.8 billion on the Signapore Stcock Exchange.

Brean Capital’s reputation is being marred by its bad bets on Macau stocks. Brean had invested $174 in Wynn, but didn’t come out a winner, as stocks fell to $132 and then to $114. Later, it bought stocks in Las Vegas Sands for $65 except now its stocks are selling for only $52. And the list goes on.

For MGM it bought stocks at $27, now they are trading at $19.30. Not to leave out its $31 target on Melco Crown, whose stocks are now trading at $19.75. The highest loss stands with that of MGM where it experienced total loss of 14.5% while Brean’s most successful call was Las Vegas Sands, with a loss of only 7.5%.

What is Brean hiding?

Indeed, stocks for LVS decreased by about 50% less than the other three casino stocks since late March, even though all of its stocks on the 4 casinos have fallen. Speculations are it could be that Brean was just trying to get rid of a few positions on stocks on the 4 luxury casinos, it was hoping would go up.

This has left its customers in a situation which happens when gambling goes bad. But did Brean mean to call in a hand it simply knew it didn’t have? After all, raking in customers are not a problem for them. Brean can get customers just by publishing their annual returns. They’d get loads more returns than betting on stocks going up.

Oversold stock and low returns

So why the gamble if all they have to do is pick, choose and refuse, knowing their popularity spreads by word of mouth? Seems as if Brean has been camouflaging its activities of unloading its Macau stocks on naive retail investors. The thing that is a bit bothersome however is that all 4 of these stocks, including Melco’s, simply continue to have a low performance rate even though their stocks continue to be oversold.

Melco’s 1st quarter profit decreased 75%, compared to the same period in 2014, and continues to fall. City of Dreams Manila, in the Philippines, the latest addition to the Melco empire, has only managed to add $2.9M to Melco’s portfolio, when compared to its property City of Dreams Macau,which is the most important casino property owned by them.

Chinese economy is faltering according to Chinese standards

Speaking of which, Macau, where Macanese gambling laws have seen the development of major casinos, making it the most important gambling hub of the world, is now experiencing losses, so expanding to smaller markets does not balance the account books. The losses in Macau stem from mainland Chinese economy being a little on the downside.

As the People’s Bank of China decreases the interest rates to 5.1%, this is still high when compared to those in the West, most recently in Germany and Switzerland. But the unfettered monetary policy of China doesn’t stop it from being one of the most rigid of all major economies.

Singapore has safer and saner economic policies.

However, the fact remains that it is rather startling that major “Macau stocks cannot even function positively enough to lower interest rates”, but other Asian gaming stocks are. For example in Singapore, Genting Berhad (GEBHY) has one of the most assorted stock places, investing in gaming as well as in agriculture, gas and oil and are doing well.

Agriculture, oil, and gas seem to be a good diversity as companies prepare for worldwide oil price inflation, which you can’t get from mobile casino gambling stocks. That said, LVS also happens to have the highest exposure to Singapore of the four casinos Brean’s invested in.

Genting Berhad expands its horizons all the way to Las Vegas

But what is even more surprising is that an Asian investor is planning to take Las Vegas gaming industry by storm. Genting Berhad of Asia is working on a Las Vegas project. Indeed it ‘ll be first foreign casino in Las Vegas ever, and the first development project on the Las Vegas Strip since 2005.

What can happen on the stock market when an Asian company invests in Las Vegas gaming industry is yet to be seen. But maybe if Brean spills the bean we may eventually find out why so many improbabilities are happening in today’s stock market.