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The Greatest Growth Story on the Planet

By Dr. Steve Sjuggerud
Monday, May 7, 2007

"The customer in Las Vegas comes into the casino to be entertained... The Chinese customer walks into the casino to face destiny. They are here to do battle - and strike it rich." - local Macau casino manager, on the Chinese love of gambling. 

It happened in the 1990s in Macau. 

At the time, organized crime groups – called triads – controlled the tiny Chinese peninsula. 

A stock market analyst bumped the wrong guy's girlfriend at a ritzy party... and the AK-47 automatic rifles came out. 

The party was at the Mandarin, the only decent hotel in Macau at the time. The Americans were rightfully scared... nobody wanted to leave the hotel. 

Macau has always been a big gambling center. And in the 1990s, it was seedy and grimy, all about sex and violence.

Since then, the place has completely transformed. It has become unrecognizable from just five years ago. The reality is, Macau is now the greatest growth story on the planet... 

Macau has become the Asian Las Vegas. Gambling revenues drive the place. And the new, cleaned-up Macau is an extraordinary opportunity for investors, as I'll show you in a moment. 

Macau's economy grew 20.1% in the fourth quarter of 2006, topping the third quarter's growth rate of 18.8%. Growth rates in the teens have been the norm for the last five years. And the growth should continue... 

PricewaterhouseCoopers recently predicted that Macau's casino-gambling revenues would increase at 16% a year, reaching $12 billion in 2010. 

I can't wait to check it out firsthand. So this month, I'm meeting up with legendary property investor Peter Churchouse – who you might remember from this issue of DailyWealth. And I'm going to Macau. 

The story of Macau's extraordinary rise in the last five years is simple. I can sum it up in one line: 

It is illegal to gamble in China... except in Macau. 

You see, the Chinese are legendary gamblers. Through a quirk in the laws, the Chinese are now able to gamble legally – but only in Macau.

Thanks to gambling, tiny Macau has grown so fast that it actually overtook Las Vegas in 2006 to become the world's biggest gambling destination.Yes, more money is bet in Macau than anywhere in the world, including Las Vegas. And 2007 is off to such a rocking start that Las Vegas has already been left in the dust. Naturally, investments there are performing incredibly well...

Sands Macau's owner, Las Vegas Sands, has seen its stock more than triple since its December 2004 initial public offering.
Wynn Macau's owner, Wynn Resorts, has seen its stock shoot up sevenfold since 2002.
Melco International, controlled by gambling mogul Stanley Ho, has gone up 18-fold since December 2003.
Hong Kong-listed Shun Tak Holdings, a Macau-focused conglomerate, has more than quadrupled since December 2003.

So why is Macau so much better than Vegas? 

Well, for starters, the Chinese have a legendary love of gambling. And those flocking to Macau bet big money... much more than Americans. They prefer table games like baccarat to the cheaper slot machines so popular in Vegas.

As I looked for the right way to play what's going on there, I found the opportunity couldn't be more obvious. It's Macau real estate. People are pouring in. But there is no land. (If Macau were shaped like a square, it'd be three miles long by three miles wide.) And during the seedy 1990s, there was hardly any decent residential construction. Heavy demand and no supply... that means prices can only go one way. 

The government estimates as many as 100,000 new construction jobs are under way in Macau. In the next year, 17,000 foreign workers are expected to move to the tiny city because of the gaming industry. Where will they live? 

There is nowhere close to enough living space in Macau to meet the demand in the coming years. The numbers and the story make the profit potential here obvious: 

Gambling is illegal in China. But the Chinese are allowed to gamble in Macau. Since this became clear, Macau has been the greatest growth story on the planet. That makes Macau real estate a one-way bet for the foreseeable future.

Good Investing,

Steve




Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Zinc... record high
Lead... record high
Copper... 11-month high
Anglo American (AAUK)... diversified mining
BHP Billiton (BHP)... diversified mining
Martin Marietta (MLM)... diversified mining
Teck Cominco (TCK)... diversified mining
Cameco (CCJ)... uranium mining
Quanta Services (PWR)... electrical infrastructure
LaFarge (LR)... world's largest cement producer
McDonald's (MCD)... fast food
Verizon (VZ)... telecom
Nokia (NOK)... cell phones
Service Corp. International (SCI)... largest U.S. funeral-home chain
Valero (VLO)... oil refining
Devon Energy (DVN)... oil & gas
National-Oilwell Varco (NOV)... oil services
Dawson Geophysical (DWSN)... oil services
Transocean (RIG)... deepwater oil drilling
PowerShares Pharmaceutical (PJP)... Big Pharma ETF
Pharmaceutical HOLDRs (PPH)... Big Pharma ETF
ExxonMobil (XOM)... Dan Ferris Extreme Value pick
EnCana (ECA)... Dan Ferris Extreme Value pick
KHD Humboldt Wedag (KHDH)... Dan Ferris Extreme Value pick
KLA-Tencor (KLAC)... Dan Ferris Extreme Value pick

NEW LOWS OF NOTE LAST WEEK


Trump Entertainment (TRMP)... casinos
Southwest Airlines (LUV)... airline
JDS Uniphase (JDSU)... networking
Circuit City (CC)... electronics retailer

– Brian Hunt


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