Macau will finalise details for a new sovereign wealth-type fund after a public consultation from mid-next year, the territory's de facto central bank has told AsianInvestor.

Following the Macau government's announcement in August that it wanted to establish the Macau investment development fund management company, the Macau Monetary Authority has set up a working team to prepare for the public consultation work, a spokesman said.

The consultation paper, which will include details of the new fund's regulatory oversight and initial capital, is expected to be released by next summer. It is expected to be followed by a series of public consultations and presentations to the Macau legislative assembly.

In May, the Secretariat for Economy and Finance told AsianInvestor that special appropriations would be made from the fiscal reserves to capitalise the Macau Special Administrative Region Investment Development Fund. This would serve to optimise Macau’s existing reserve-management system, enhancing its returns by adopting commercial and market-orientated investment management models, the secretariat said.

It intends for its new sovereign wealth fund to be managed by an independent corporate entity owned directly by the government instead of via the Monetary Authority, which manages the city’s fiscal reserves.

The new investment fund is also part of the Chinese territory's longer-term plans to diversify its gambling- and entertainment-dominated economy and maintain the sustainability of Macau’s financials, the secretariat added.

Fernando Chui
 

The gaming industry represents 51% of aggregate activity and 22% of the employed population, according to a Fitch report published this week.

The spokesperson declined to specify when the new fund would be up and running or whether the fund would end up being managed by the de-facto central bank if the plan to set up a new corporate entity fell through after the public consultation.

Macau chief executive Fernando Chui said earlier in the year that the fund would invest in projects linked to the Guangdong-Hong Kong-Macau Greater Bay Area, a scheme that aims to promote closer economic ties between Hong Kong, Macau and nine cities in Guangdong province.

Chui added that Macau was already involved in 49 projects related to the Greater Bay Area.

NEGATIVE OUTLOOK

News of the planned sovereign wealth fund consultation comes as Fitch Ratings downgraded its outlook for Macau to “negative” from “stable” ahead of the 20th anniversary of its handover from Portugal to China this Friday.

The agency's rating on Macau rests on the assumption that the territory's governance, rule of law, economic policy framework, etcetera, remain distinct from that of mainland China. These assumptions are now evolving as China's special administrative regions become more closely integrated into the national governance system, Fitch said.

The social disruptions seen in neighbouring Hong Kong in recent months also suggest that this transition could be a bumpy ride.

Worse still, Fitch forecasts the Macau economy to contract by 2.5% in 2019, largely a by-product of the downturn in the gaming sector. The rating agency anticipates subdued economic activity to continue into 2020, with gaming revenue growth in the low single-digits and real GDP growth seen at 0%.

That, in turn, will adversely affect the city’s fiscal reserves, which sources 80% of its fiscal income from taxes on casino operations.

Macao's fiscal reserves stood at MOP554.9 billion ($69 billion) as of September-end. They also recorded a 0.57% investment loss in 2018, dragged down by MOP14.97 billion loss on its outsourced equity investments. The performance data for 2019 is not yet available.