Macau Is Officially In A Recession

According to the most recent economic numbers from Macau, the island is now officially in a recession. The latest economic data from the Statistics and Census Service shows that Macau's fourth quarter GDP fell 17.2 percent year-over-year.

This large drop followed a 2.3 percent drop in Q3 and marks Macau's second consecutive quarter of negative GDP growth. That means the current economic downturn now meets the standard definition of a recession.

Macau's Gaming Economy

Macau is a small island off of the coast of China and is officially a "Special Administrative Region of China."

Gambling, which is illegal in every other part of China, was approved in Macau in 2002. The gaming business in Macau has since exploded into a $45 billion industry, seven times the size of Las Vegas.

Related Link: Morgan Stanley Downgrades Wynn Resorts Amid Concerns Over Macau's Market Growth

What Happened In 2014?

As Macau expanded, the island essentially placed all its economic eggs in one basket: The casinos. More than 80 percent of the government's revenue comes from gaming.

By failing to diversify its tourism industry, the economy was left strongly tied to the fortunes of the gambling industry.

When the Chinese government announced a corruption crackdown in Macau in early 2014, many of Macau's high net-worth VIP gamblers decided to lay low, and monthly gaming revenue growth numbers have been negative ever since.

Stocks React

Stocks of the four U.S.-listed gaming companies with exposure to Macau -- Las Vegas Sands Corp LVS, MGM Resorts International MGM, Melco Crown Entertainment Ltd MPEL and Wynn Resorts Ltd WYNN -- are all trading down on the latest economic numbers.

Shares of all four names are down more than 25 percent in the past year.

Disclosure: The author owns shares of Melco Crown Entertainment.

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