By Tim Seymour
It looks like the Chinese middle class is flocking to Macau in a big way, even if speculators are fretting about a slowdown in the gambling haven's ability to entice ultra-rich visitors. Morgan Stanley (NYSE:MS) just downgraded Galaxy Entertainment (OTCPK:GXYEF) from outperform because at this point the opening of the Galaxy Macau -- and the accompanying market share gain -- is already priced into the stock. On the other hand, Melco Crown Entertainment (NASDAQ:MPEL) could run up to $9.50 in the analysts' eyes.
Valuations remain compelling, they say. This is a reaction to the fact that Macau stocks have held up much better than many believed they would. The affluent are still spending 5% more in these casinos than they were a quarter ago, but the big story is that the mass market customer is also sticking around — and spending 10% more on a quarter-to-quarter basis.
In the long term, casinos that cater to the middle class may end up dominant. Starting around May, the elite names — MPEL and Wynn Macau (OTCPK:WYNMF) — may start lagging or even decline.