From casino chips to blue chips?
The Chinese territory of Macau is debating whether to open a yuan-denominated stock exchange in an attempt to diversify its economy.
Macau is heavily dependent on gambling, its main generator of income. Last year gross gaming revenues were more than $38bn (£30bn) and contributed 80% of the government’s budget.
It is the only area of China that is licensed for gambling and is Asia’s top destination for players. Indeed, it is currently the world’s biggest center for gambling. The casinos there regularly attract VIP high rollers who come to play baccarat.
But its attractions appear to be waning. A significant drop in revenues of 8.3% was recorded in April. And Macau is facing competition from Japan, which is gearing up to open three resort casinos shortly.
Feasibility study underway
According to an email sent by Macau’s Monetary Authority to news agency Reuters, it is researching the feasibility of opening a stock exchange and wider securities market.
The email said a stock exchange would “leverage Macau’s advantage to serve the country’s need.” China already has stock exchanges in mainland Shenzhen, Shanghai, and Dalian, as well as the territory of Hong Kong.
The Monetary Authority added: “Macau has a very strong position in promoting itself as the financial service platform between the mainland and Portuguese-speaking countries and the mentioned feasibility studies will be conducted under this context and advantages.”
The move is not unusual. Last year Macau opened a bond trading exchange called Chongwa (Macau) Financial Asset Exchange (MOX), with the approval of the Chinese government. And the Monetary Authority believes a stock exchange in Macau could potentially outperform those in Hong Kong and the Chinese mainland.
China’s economy has been slowing for some time and the government is looking for ways to boost it. It currently has development plans for the Greater Bay Area, which Macau is part of. Development in the Pearl River Delta would also be a boost for Hong Kong and neighboring Guangdong province.
The plans include supporting Macau’s attempts to expand its financial services sector. It currently offers bond issuance (through the newly established MOX), financial clearing, and wealth management. A securities and stock exchange would cement Macau’s future as a significant financial hub in Asia.
Diversifying will happen
Whatever becomes of Macau’s proposal for a stock change, the territory is definitely moving away from its reliance on gambling. Already, casinos are being told that if they wish to renew their licenses they must expand their non-gambling offering.
Tourism is already a big earner for Macau, a colony of Portugal until 1999. The mix of Chinese and Portuguese culture is a big draw for visitors, who number 3.4 million per month, and the territory is on the UN World Heritage List. Among its attractions are the Macau Grand Prix, an international film festival, and dragon boat races.
The Chinese government is also keen for Macau to exploit its Portuguese connections. It sees an opportunity for the island to position itself as a business platform for Portuguese-speaking countries, which include Brazil, Cape Verde, and several African countries as well as Portugal.
However, finance industry representatives in Macau have mixed views on the viability of a stock exchange.
The CEO of Macau’s Banco Nacional Ultramarino, Carlos Alvares, said a stock exchange would not be competing with Hong Kong. “We will be complementary to Hong Kong,” he said, “because our focus is mainly on Portuguese-speaking countries.”
However, others have said Macau does not have the right economic infrastructure to ensure a stock market could thrive. One anonymous source from a Chinese state bank described the proposal as “a gimmick.”
This move could therefore be a huge gamble for Macau.