Will The Gaming ETF Soar If Japan Approves Gambling? [Las Vegas Sands Corp., MGM Resorts International]

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July 7, 2014 5:02pm NYSE:BJK

casinoCasino stocks are once again thriving on the prospect of a gambling legalization in Japan. But this recent uptrend follows a down phase that these stocks went through this year on issues in Macau – one of the largest casino gaming destinations in the world.

Talks of gambling legislation in Japan have long been doing the rounds.  On June 17, Japan started debating over the clearance of the bill, as per Bloomberg. The party in favor of the legalization – headed by Prime Minister Shinzo Abe – seeks to enhance tourism prior to the Tokyo Olympics in 2020. The passage of the bill would tag Japan as the second-largest Asian gambling destination after Macau.

The gambling resort industry in Japan could grow to $40 billion-a-year by 2025, as estimated by CLSA Ltd, implying that it would be Asia’s second largest gambling hub. Eiji Kinouchi, a senior strategist at Daiwa Securities Co believes that the chance of passing the bill in the next parliamentary session in August is “extremely high”. Kinouchi also looks forward to seeing the Japanese economy gain immense traction from this bill.

As per Bloomberg, a falling yen and relaxed visa rules are already working in favor of tourism in Japan.  For the first time in 44 years, spending by tourists visiting Japan was higher in April than what the Japanese spent abroad.

And a surge in tourism is expected in 2020, when the country hosts the much-awaited Olympics. Thus, Shinzo Abe – known for his high-yielding economic policy “Abenomics” aims an undisputed vote by the end of the year for the bill that was submitted last December.

Several Japan-based casinos clocked gains since June 17 – the heyday for the legalization process. In fact, U.S.-based casino operators like MGM Resorts International (NYSE:MGM), Wynn Resorts Ltd. (NASDAQ:WYNN) and Las Vegas Sands Corp. (NYSE:LVS) were up considerably in the past 10 trading sessions.

Notably, MGM, LVS and WYNN added about 6.68%, 5.73% and 4.56%, respectively (as of July 3, 2014). Most of the Las Vegas strip players are planning to make big investments in Japan.

How to Play?  

Investors can easily take advantage of the rise in share prices of the casino stocks. While single stock picks are always an option, a basket approach would be prudent as it will help investors realize the benefits of the entire space through a single product and also allow investors to weather company-specific risks.

Below we have highlighted the pure play on casino gaming – Market Vectors Gaming ETF (NYSEARCA:BJK) – in detail.

BJK in Focus

The fund looks to track the Market Vectors Global Gaming Index and provides investors direct exposure to the casino gaming market.  The product has so far been overlooked by investors as evident from its paltry volume of about 30,000 shares daily.

The fund has an AUM of $61.8 million which is invested in 46 holdings. The product is somewhat expensive as it charges 65 bps in fees per year which is on the higher end of the expense ratio prevailing in consumer discretionary ETFs.

All three companies mentioned above have found a place in the top 10 holdings of the fund with a considerable share. Las Vegas Sands and Sands China– together have about 15% exposure in BJK.

MGM China holdings (about 6.00%) and MGM Resorts International (4.90%) call for more than 10% of the fund combined. Wynn Macau (3.38%) and Wynn Resorts Ltd (5.97%) also account for more than 8% of BJK.

Though BJK lost about 3.43% so far this year, it added about 5.76% over the last 10 days. The product holds a Zacks ETF Rank of 3 or Hold rating with a High risk outlook, though if Japan approves gambling in the nation, this product could be an interesting long-term play for investors.

This article is brought to you courtesy of Zacks.

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