Melco Resorts Stock's Big Boost From China's Stimulus Plans

Shares of gambling company Melco Resorts & Entertainment (NASDAQ: MLCO) jumped as much as 17% in trading on Thursday after news broke that China's political leadership, known as the Politburo, said it would provide "necessary fiscal spending" to meet 5% GDP growth targets. Investors think that could mean more visits to gambling hub Macao, a special administrative region of China, which would help a still-recovering gambling industry. Melco's shares closed the day up roughly 16%.

China's spending plans

China has been in a multiyear slump as the real estate market struggles and economic growth slows, leading to a poor market for workers. To combat the weakness, the central bank and Beijing are expected to provide stimulus, although it's not clear exactly what form it will take.

Governance and data are often very opaque in China, and that's the case here as well. While stocks are up big on the news, we are a long way from a dramatic improvement in China's domestic economy.

Macao's role in China's economy

If there is stimulus and the stock market in China rises, it makes sense that Macao and Melco Resorts would be beneficiaries of increased spending. Macao is the only part of China where gambling is legal. Melco's Macao businesses include Altira Macau and City of Dreams, as well as the Mocha Clubs and Studio City.

Stimulus could also pour fuel on the growth that's already taking place in Macao. Gambling revenue is up 33.4% so far in 2024 in the region, and casinos are now back to profitability after struggling through the pandemic. If China's stimulus does kick the economy into gear, it could be a big win for Melco Resorts.

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Travis Hoium has positions in Melco Resorts & Entertainment. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.