Short Sellers Gamble With Gaming ETF's Holdings

The Market Vectors Gaming (ETF) BJK is up nearly 10 percent year-to-date, but that is not preventing some short sellers from targeting some of the gambling exchange-traded fund's holdings, particularly those of the Macau variety.

Global Exposure

Overall, BJK features exposure to 15 countries, with the United States, Australia and China being the only ones commanding double-digit weights. Five of BJK's country weights are emerging markets.

Macau, the only Chinese territory where gambling is legal, is the world's largest gambling hub.

Earlier this month, Benzinga reported gaming revenue in the month of July for Macau came in at 17.7 billion patacas. This figure, according to data released by the Macao Gaming Inspection and Coordination Bureau, is about 4.5 percent lower than July 2015’s number. The 4.5 percent decline actually beat analysts’ low consensus expectations of a 5.5 percent drop.

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“Short sellers, who are no strangers to taking a view on gambling stocks, have been busily adding to Macau operator short positions in the weeks leading up to yesterday’s opening of the Wynn Palace which has in turn taken the average shorting activity across the region’s gaming sector back up from recent lows. Current average short interest across the region now stands at 2.6 percent of free float on average, 10% higher than the lows set three months ago,” said Markit in a research note.

It's More Than Black Jack For BJK

U.S. stocks account for 35 percent of BJK's weight. Due to market cap erosion experienced by some Macau names, China is now longer the ETF's second-largest geographic weight. Australia holds that spot at 16.3 percent followed by China at almost 9 percent.

While Las Vegas gambling data is solid and the U.S. is clearly a key driver of BJK's returns, Macau is a pivotal barometer of investor sentiment toward gambling stocks.

As Benzinga noted, some Macau stocks remain well of their highs: Shareholders of the four U.S.-listed Macau names are hoping that the worst of the selloff is now behind them. The stocks of the four Macau names are down between 8 and 56 percent in the past two years.

“Wynn Resorts, Limited WYNN has been a favorite for Macau bears for quite some time and the 32 percent jump in shares shorted over the last month means that bearish sentiment in the stock now stands at a six month high. Although the company’s current short interest is still over a third lower than at the heights of last year’s uncertainty, the resurgent short interest indicates that Wynn still has to placate its doubters,” added Markit.

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