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Why Should Investors Watch China’s Disposable Income?

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Disposable income

Disposable income is the amount of money available to households after income taxes have been paid. It’s the amount available for spending and saving purposes. Real disposable income is the disposable income adjusted for price changes due to inflation.

The disposable income trend is a key indicator to assess a country’s economic condition.

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Why does it affect casinos?

As disposable income rises, people usually tend to spend more on leisure activities, including gambling. As a result, rising disposable income benefits casinos. In contrast, falling disposable income will spell trouble.

China’s disposable income is important for Macao casinos

As, we’ve seen in the previous parts in this series, a major percentage of visitors at the Macao casinos are from China. In May 2015, the visitors from China contributed to about 66% of the total arrivals.

China’s national income per capita in 2015 has risen to 28,844 yuan from 26,955 yuan. This is a rise of ~7% YoY (year-over-year). For 1Q15, the per capita disposable income in China rose by 9.4% to 6,087 yuan. The per capita disposable income of urban households was 8,572 yuan—a rise of 8.3% YoY. For rural households, the per capita disposable income was at 3,279 yuan—a 10% rise YoY.

Key takeaways

A rise in China’s disposable income would mean that more Chinese visitors would probably come to the casinos in Macao. The above chart shows that China’s urban disposable income per capita has been rising since 2006. This could mean that consumers have more buying power. This is positive for casino companies like Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN), and Melco Crown Entertainment (MPEL).

The VanEck Vectors Gaming ETF (BJK) has ~8.6% and 7.1% exposure to Las Vegas Sands and Wynn Resorts, respectively. Alternatively, you can also invest in the Consumer Discretionary Select Sector SPDR Fund (XLY). XLY holds ~1% in casino stocks.

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