Market Overview

Japan: The Next Casino Gaming Frontier?

Japan: The Next Casino Gaming Frontier?

The latest buzz in the casino industry is the possibility of Japan legalizing gambling and there are more signs pointing to this becoming a reality. If the country opens up the doors to casinos, it could become the second largest gambling market in the world.

With Tokyo hosting the 2020 Summer Olympics, imagine the revenue that would be generated from gambling and more important the tax receipts for the government. Japan’s Prime Minister Shinzo Abe will likely raise taxes as he looks to increase revenue for the country, allowing gambling would be another windfall for Japan.

A casino company already involved in the Asian casino sector is Melco Crown (NASDAQ: MPEL). The company stated it would invest more than $5 billion in casino resorts in Japan if they were granted permission. Wynn Resorts (NASDAQ: WYNN) said its investment in Japan would be “way bigger” than the $4 billion it is spending on its current project in Macau.

Speaking of Macau, gaming revenue for the region increased by 21.4 percent in September to $3.63 billion. Even though a typhoon hit the southern part of China at the end of the month, Macau was still able to display strong growth.

The play here would be either to take the risk of buying individual casino stocks or take the less-risky route of an ETF. The Market Vectors Gaming ETF (NYSE: BJK)is a basket of 45 global gaming stocks that has direct exposure to the Asian opportunities. The top two holdings are Las Vegas Sands (NYSE: LVS), Sands China, and WYNN.

The global aspect of the ETF is attractive with only 31 percent in the U.S. and 24 percent in China. Other countries represented at the top of the list are the U.K., Australia, and Malaysia. BJK is a niche ETF that offers global exposure and would be a direct play on the continued solid growth in Asia and the emerging markets.

Year-to-date the ETF is outperforming the overall global market with a gain of 36 percent and is sitting at its highest price on record. Even after the large rally in 2013, the ETF remains an attractive investment for investors in search of global growth.

The biggest risk is a global economic slowdown that could halt the robust expansion in Asia and the gaming revenues in the U.S. Investors should be cognizant of the risk as well as the fact the ETF trades with a beta of 1.40, suggesting volatility above and beyond that of the overall U.S. stock market.


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