Russia hardly has a monopoly on unpleasant companies and tactics, however. There are always Chinese gambling junket stocks!

We have been hoping to write about China for a bit and the recent slew of headlines about Macau casinos has given us a great excuse to dive back in and make an argument about why these esoteric companies are great evidence for why investing in Chinese companies is a tough sell.

The short summary is that:

• The rolling and almost random state led crackdowns against various industries continues apace.

• The latest victim appears to be the very popular gambling industry, centered on the semi-autonomous city of Macau, near Hong Kong.

• On top of all this, China is also struggling economically in other respects as well. Its economy continues to really have difficulty growing at anything approaching a decent pace.

• Add this all together and you realize that Chinese markets continue to be a huge challenge to invest in. Any industry and even any executive could be under threat at any time. Tough!

One thing is for sure, Macau casinos are big business. Macau is the largest gambling center of the world and the sums gambled there are staggering.

And one of the not-so-secret drivers of this gambling is driven by rich individuals from Mainland China trying to desperately get their capital out of China and into the global financial system.

This has been going on for literally decades but as with so many other aspects of life in China, what was once illegal but tacitly allowed for the elite is now suddenly viciously prosecuted and heavily sanctioned.

The Communist Party under Xi Jinping dislikes not being able to control those flows of capital and also feels like it is a threat to their authoritarian control and the new goal of "common prosperity."​

That phrase may seem like a piece of empty propaganda, parroted for the gullible or the ideological but every week Chinese industries and individuals discover just how serious it is.

This week was the turn of what are commonly called gambling "junkets" stocks. After the arrest of the founder and chief executive, the largest gambling junket, Suncity's stock fell nearly 50% and the company may never recover.

More broadly, these junkets account for around 70% of Macau's gambling volumes and Suncity is estimated to account a third of this total. As a result, with China's crackdown on the most famous and successful (and politically connected!) of these junket owners it has thrown a panic into not just the Chinese but the global gambling industry as well.

From a Western or US perspective, the campaign against illicit gambling junkets impacts the US markets as well as both Wynn ($WYNN) and Las Vegas Sands ($LVS) are both heavily exposed to Asia and have made major bets on Macau delivering mega growth.

The pandemic has been a major challenge to realizing that growth. A state led campaign on top of Covid will truly terrify the global gambling industry.

This presents a nice and double barrelled Pebble opportunity:

1. There are good values based reasons to dislike casino stocks.

2. Thanks to Omicron and China's "Zero Covid" approach there are also decent Covid related reasons to stay away.

3. And now there is a state-led campaign to simply hammer a certain percentage of the fastest growing part of the industry out of existence.

Not great!

Keep it in mind the next time you allocate more capital to your 401K or IRA. How many global gambling equities do you own in your retirement accounts?

How much growth are your savings expecting from Macau and Alvin Chau's famous junkets?

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