Protests in Hong Kong may be starting to deter gamblers from casinos in nearby Macau, with revenue in the world’s biggest gaming hub unexpectedly falling in July.

Gross gaming revenue for Macau casino operators was $3 billion (24.5 billion patacas) in July, down 3.5% percent from a year earlier, according to data from the Gaming Inspection & Coordination Bureau on Thursday. That missed analysts estimates for a 2 percent increase, and cuts short a two-month rebound.

Macau casinos have been holding up recently despite headwinds including trade war uncertainties and a weaker Chinese economy, with tourist arrivals at record levels helping to boost mass-market betting. But the high-roller segment has languished, and recent headlines about unrest in Hong Kong and a possible crackdown by China against junket operators may be scaring away more VIPs.

‘Short-Term Blip’

“VIP demand deteriorated sharply toward the latter half of July with no obvious reason, in turn suggesting it could be a short-term blip amid heightened media attention on Hong Kong, given escalated protests, and junkets,” JPMorgan analysts led by DS Kim wrote in note Thursday. While the results were disappointing, the analysts said they didn’t see the July miss as “thesis-changing” in the long term.

Investors showed little sign of alarm. A Bloomberg Intelligence index of Macau operators fell 1.1 percent Thursday, after dropping as much as 2.7 percent before the revenue data were released. Casino stocks have been volatile over the past few months, including a 20 percent drop in May. The index is still up 11 percent for the year, led by Melco Resorts & Entertainment and SJM Holdings.

The picture for the industry was brightening recently amid strong tourism and signs that the retreat in the high-rollers segment may have touched bottom. But the July numbers raise more questions about Macau’s ability to bounce back, and the impact the latest challenges will have on casinos.

New Bridge

Some analysts had expected casinos would be shielded from the protests that have rocked Hong Kong in June and July, as improved infrastructure allows mainlanders to reach the gaming hub without setting foot in Hong Kong. But UOB-Kay Hian analyst Robin Yuen said Thursday that the protests may have hurt visits from the Hong Kong side, noting that Sunday’s protest disrupted ferry service.

While Macau tourist data for June show record levels, numbers for July aren’t yet available. Concerns are growing that the latest month may show a falloff, especially in tours that often bundle Hong Kong and Macau into a single package.

High-stakes gamblers may also be staying away amid reports in mid-July that China is increasing scrutiny on junket operators that offer online betting.

Analysts have a restrained outlook for the months ahead, due to the regulatory risks and disruptions from further Hong Kong protests. But while Yuen says August may be challenging, the UOB analyst sees revenue growth strengthening in the second half, especially if the intensity of the trade war eases.

©2019 Bloomberg L.P.

This article was written by Jinshan Hong from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Photo Credit: Croupiers at Sands Macau. Bobby Yip, Reuters