International Investing

After Fridays legislative sneak attack on the online gaming industry, stocks in the sector got slammed across the board. Yesterday PartyGaming, Sportingbet, and 888 Plc all lost at least half their value. Besides the gaming companies, payment processors also took a hit. NETeller and FireOne Grp. both saw declines of more than 50%.

Today the gaming firms continued to bleed but the payment processors staged a rally with NETeller finishing up nearly 15%. Why is the market valuing payment processors differently than gaming firms?

Jason Ruspini at Risk Markets And Politics provides some answers:

Even if there is effective implementation of payment blocking, options such as NETeller (NLR.L), FirePay (FPA.L) or MoneyBookers are somewhat untouched by the legislation. In reality, little has changed for US traders. Overseas internet gambling companies will bear the main brunt of the legislation, as US clients may be reluctant to use alternative payment methods, and even if they do so in large numbers, gambling companies will then face increased counterparty risk. At least one alternative payment company might actually benefit from this law.

The trade here is to short gaming firms and buy the payment processors. Read the rest of the post for details about the effect of this legislation.