Evergrande was the story yesterday, as investors from one side of the planet to the other weighed the chances the Chinese property mega-developer – the world’s most indebted company – could default on part of its $300 billion in obligations.
To be honest, I’m not sure what could happen, and I’m not sure speculating would be helpful, anyway.
Its immediate impact has been to send the markets lower all over the world, including here in the United States.
That obviously raises questions like, “Should I buy the dip?” We saw a lot of stocks move lower last week, and there are some genuine bargains out there right now. The one I’m thinking of right now isn’t – no one should buy it at these levels.
In fact, you should be running as fast as you can in the other direction. If you bought on the way down, or if you’re tempted by even lower prices, don’t fall for it.
Sell this stock first thing this morning…
The “Other” Big China Investing Story Just Got Swamped
President Xi Jinping and the Chinese government are in all-out “crackdown” mode. Tech companies, social media, Taiwan, banking, dissent… On second thought, it’d probably be easier to list what they’re not cracking down on.
The government is asserting its control over two regions that are, at least in theory, mostly autonomous from Beijing. Last year, we saw the Chinese government take unprecedented steps to rein in some of the freedoms Hong Kong had enjoyed. The territories of Hong Kong and Macau, former British and Portuguese colonies, enjoyed a unique status that made them global hubs of finance, trade, and in Macau’s case, gambling. Macau eclipsed Las Vegas as the world’s epicenter of gambling over the past decade, with the highest density of casinos anywhere on Earth.
Last week, there were alarming signs that that could soon change when Beijing announced there would be “consultations” over gaming licenses in Macau, citing possible “deficiencies” in how gaming is regulated in the territory.
It sure seems now like those “deficiencies” may have been the secret sauce that made Macau gaming stocks attractive to global investors, because they fled in droves. A Bloomberg Intelligence index of the six major Macau casino operators dropped 23% last week, and the selling actually jumped the Pacific Ocean to hit American casino stocks, too, plenty of which have at least some form of exposure to China. U.S. casino stocks lost around $4 billion in value, but Macau operators lost as much as $20 billion.
“Fold Your Hand” on This Casino Stock Now
Wynn Macau Ltd. (OTC: WYNMF), in particular, is one of the two hardest-hit of the six Macau gaming stocks, losing nearly 32% over the past five days. Wynn was one of the marquee stocks for investors looking to play Macau’s gambling sector, but the shine is gone.
To make matters worse – or maybe more confusing – Wynn Macau announced yesterday that it secured a $1.5 billion line of revolving credit it says will be used to refinance debt. That’s not normally a problem, but coming as it does in the middle of a massive downturn, investors are selling Wynn Macau even more fiercely. Casino news sites reported that JPMorgan downgraded Wynn Macau from “neutral” to “sell.”
If you’re trying to ride out a decline in WYNMF, sell. If you bought WYNMF when it was down 23%, sell. If you’re thinking of buying today, don’t.
Now, a 20%-plus correction in any stock would have bargain shoppers at least kicking the tires, and I can’t say I’d blame them for thinking the Macau gambling crash would be a “buy the dip” event.
But it isn’t. And it won’t be for a long time. It could be another year or more before the Chinese government is through with Macau casino “re-regulation,” as licenses come up for renewal. That’s a long time to have a cloud of uncertainty over what, at best, would be a speculative recovery play.
That said, if you’re really intent on “rolling the dice,” I think the American gambling sector is a much better, much safer bet right now. Like I said, some U.S. casino stocks with Macau subsidiaries took a hit last week, and I’d advise waiting to see how Chinese regulations shake out before jumping on anything that looks like a bargain.
Keep your focus closer to home.
Instead, I’d look at American sports betting stocks which, along with a lot of other U.S. stocks, are on sale right now, but the difference here is they’re worth buying. I’m on the record as loving DraftKings Inc. (NASDAQ: DKNG), and the stock is looking mighty nice right now; Monday’s massive, global sell-off knocked nearly 5% off the price, taking it well below $60. I’d be a buyer here.
There’s no stopping sports gambling here, but take a look at other unstoppable trends, too. EVs, for instance, are one of the year’s hottest investments.
I know a tiny stock in the electric vehicle space, trading for just about $2 right now. It just finished a wild 1,100%-plus ride over the past year, and it’s got its sights set on another massive one-year run. This EV company is looking to go public on a major U.S. exchange, and it could potentially happen any day now. Once that listing happens, the stock could very well make a repeat of its quadruple-digit run over the next 12 months – not $5, $10, or even $15, but possibly over $20 per share within the next year. You can learn how here…
Follow Money Morning on Facebook and Twitter.
Join the conversation. Click here to jump to comments…
About the Author
Browse Andrew’s articles | View Andrew’s research services
Andrew Keene is a globally known trader and a renowned expert on all things options.
… Read full bio