Melco Resorts shares boost on China’s stimulus plans

Gambling Company Shares Melco Resorts & Entertainment (MLCO 15.93%) trading surged as much as 17 percent on Thursday after news emerged that China’s political leadership, known as the Politburo, said it would provide “necessary fiscal spending” to meet targets for 5 percent GDP growth- the Investors believe that could mean more visits to the gambling hub of Macau, a special administrative region of China, which would help a still recovering gambling industry. Melco shares ended the day up about 16%.

China’s spending plans

China has been in crisis for several years as the housing market struggles and economic growth slows, leading to a poor market for workers. To combat the weakness, the central bank and Beijing are expected to provide stimulus, although it is unclear exactly what form it will take.

Governance and data are often very opaque in China, and this is the case here as well. While stocks are high on the news, we are far from a dramatic improvement in China’s domestic economy.

Macau’s role in China’s economy

If incentives are in place and China’s stock market rises, it makes sense that Macau and Melco Resorts will be the beneficiaries of increased spending. Macau is the only part of China where gambling is legal. Melco’s Macau businesses include Altira Macau and City of Dreams, as well as Mocha Clubs and Studio City.

The stimulus could also throw fuel on the growth already taking place in Macau. Gaming revenue is up 33.4% so far in 2024 in the region, with casinos now back to profitability after battling the pandemic. If China’s stimulus kicks the economy into high gear, it could be a big win for Melco Resorts.