Sector Report

Ways to make HK & Macau great again

by Aaron Fischer / Sep 30, 2016


Inbound tourism into Hong Kong and Macau has fallen 6% over the past two years after seeing 216% growth in the “golden decade” that began in 2003. Unless things change, we expect around 4% growth in the coming years. This report discusses what attractions the Special Administrative Regions (SARs) need to “make Hong Kong and Macau great again”.

One country, two visas
Hong Kong and Macau make it very difficult for mainland Chinese to secure tourist visas. We argue the process should be simplified and expanded in ways that allow higher-spending tourists (and not day traders) more regular visitation rights. One option would be to grant Chinese passport holders long-term multiple-entry visas similar to Japan (five years) and the USA (10 years).

Hong Kong is losing share from years of underinvestment
Hong Kong cannot just wait for gifts from the central government and needs to act. It has a lot to offer tourists, but continues to lose share to other countries. Improvements in tourism infrastructure, including a comprehensive makeover of the Victoria Harbour, would be welcome. We envisage iconic architecture, waterfront hotels, retail and restaurants promenades plus walking/cycling paths and better promotion of Hong Kong’s nature, such as national parks and waterways. A major yachting event could also help celebrate these. A true world-class event such as a Hong Kong F1 or even a “Pearl River Delta” Olympics would be well received. Hong Kong’s arts & culture scene are below the standards expected of “Asia’s World City”.

Macau: Government leadership needed
The years of Macau gaming revenue growing 35% are sadly over, but the enclave could still do more to transform itself into a true tourism destination. It would benefit from a more long-term strategic development plan, including earlier clarity on concession renewals. Long-awaited infrastructure improvements such as the bridge, LRT and Taipa ferry terminal would help. The gaming companies need to keep investing in non-gaming assets and events such are more “meetings, incentives, conferences and exhibitions” (MICE), family-friendly activities and entertainment that appeals to millennials.

Change takes time
Unfortunately some of these changes are unlikely to happen anytime soon. We stay negative on Hong Kong retail stocks and hotel companies with high exposure to Hong Kong. In Macau, we have a more neutral view on the sector and expect revenue to grow by 6% medium term, but with limited supply additions, this will result in good cashflow returns and dividends.