As part of its semi-annual index review, MSCI, one of the world’s largest providers of indexes used by index and mutual fund issuers, announced at the beginning of November, that it would remove MGM China Holdings Ltd, the operator of two Macau casinos.
The firm gave no reason to withdraw the stock of the gaming company from the Hong Kong index, but said MGM China will be withdrawn after the Asian markets closed on November 26.
According to MSCI, it’s Hong Kong Index is designed to measure the performance of the large and mid cap segments of the Hong Kong market.
The index was home to 47 stocks at the end of October, representing 85% of the total market capitalization in Hong Kong.
MGM China’s withdrawal from the MSCI Hong Kong Index means that it will be forced to sell casino operator stocks to comply with its investment objective through passive funds monitoring the barometer and active managers that benchmark it.
As of November 8, the Hong Kong index weight of MGM China was only 0.29 percent. Only the global luxury hotel chain, Shangri-La Asia Ltd., had a lower benchmark weight of 0.25 percent.
Still, expelling the MGM Macau and MGM Cotai operator from the MSCI Hong Kong Index is interesting when considering that no other gaming stocks are being removed by the benchmark provider.
In order of position of the gauge, that index is still home to Galaxy Entertainment Holdings, Sands China, Melco Resorts and Macao’s Wynn. For about 6.65 percent of the MSCI Hong Kong Index, these gaming companies currently combine and represent the bulk of the 7.66 percent index weight for market cyclical stocks.
MGM China may have been removed from the MSCI gauge to make room for the giant Alibaba Chinese e-commerce. That company is starting a Hong Kong listing of $11 billion that will result in its inclusion in the relevant MSCI index.
If Macau opens its own stock exchange, MGM China shares may be able to find another home. Earlier this year, the Special Administrative Region (SAR) announced plans for a yuan-denominated equity market similar to an offshore Nasdaq as part of its attempt to diversify its non-gaming economy.
Given the limited scope of Macau’s publicly traded companies that are not involved in casino operations, it would be reasonable to expect that if a stock exchange comes to life there, some or all of the above-mentioned gaming equities, including MGM China, would be featured.
The bulk of MGM China is owned by MGM Resorts International (NYSE: MGM) headquartered in Las Vegas. MGM CEO Jim Murren and Pansy Ho, one of Macau’s gaming legend Stanley Ho’s daughters, are members of the board.