Macau casino operators are leading gains on Hong Kong’s stock market for the first time in nine months, a winning streak Macquarie Investment Management Ltd. and Pictet Asset Management Ltd. say is temporary.

MGM China Holdings Ltd., Wynn Macau Ltd. and Sands China Ltd. rose at least 20 percent in July, defying China’s stock rout and a report showing gamblers are spending a third less at the tables than a year ago. Macquarie says the stocks slumped so much in the first half -- with Wynn Macau falling 41 percent -- that a rebound was inevitable and it’s only a matter of time before the decline resumes.

“They’ve been sold off quite significantly from their highs,” said Sam Le Cornu, who oversees about $3 billion in Asian equities at Macquarie in Hong Kong. “In the short term, there’s probably more downside. In the long term, there’s an opportunity but investors need to be very selective.”

Casinos rallied this month after Macau eased travel rules for Chinese visitors and signaled it may relax a proposed ban on gaming-floor smoking rooms. Gaming shares plunged in the past year as China’s growth slowed, President Xi Jinping’s anti-graft campaign deterred high rollers and the mainland stock market soared. Even with this month’s advance, casinos are the worst 12-month performers on the MSCI Hong Kong Index.

The slump in the past year dragged the average valuation on Macau’s five biggest casino operators by market value to 18 times estimated earnings, about half of the peak reached in December 2013. At that point, Sands and Galaxy Entertainment Group Ltd. had surged more than 500 percent in the previous four years as an influx of mainland tourists helped Macau become the world’s largest gambling hub.

Investors Reluctant

While shares may not fall much further, investors remain reluctant to buy as the outlook for the industry remains weak, Nomura Holdings Inc. said in a July 14 note. Galaxy and Sands China dropped at least 1.1 percent in Hong Kong on Tuesday. Wynn Macau and SJM Holdings Ltd. each fell 1 percent, while MGM China retreated 0.4 percent.

Gross gaming revenue in the former Portuguese enclave slumped 36 percent from a year earlier in June, to its lowest level in more than four years. Analysts surveyed by Bloomberg expect a 30 percent drop for the year ending December, before revenues climb 4.5 percent in 2016.

“We’re beginning to see some green shoots,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees more than $20 billion. “We’ll potentially see some sequential improvement in Macau’s gaming revenue in the coming months, reflecting the lower base effect from last year. The comparables are going to get easier.”

While valuations look reasonable, said Pauline Dan at Pictet Asset Management Ltd. in Hong Kong, casino stocks probably won’t gain significantly from current levels.

“We may have seen the worst,” Dan, head of Greater China equities at Pictet, said by phone. “But there’s no rush to buy them. China’s economy is still slowing and ongoing restrictions on their operations will continue to curb growth in casino revenues.”

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