Hong Kong Market Report

RAPAPORT... While the hype is that the demand for large diamonds continues to be strong, sales appear to be centered on a very selective, relatively small percentage of diamond-purchasing consumers. Much of the virtual wealth has been wiped out with the falling stock markets and the prospect of a recession has made consumers much more careful of how they spend their money. There will always be people with money to burn, but the majority feel it may be time to sober up after a very heady two years of excess and easy money.

Demand for diamonds in Hong Kong has not shown any noticeable change in the past few weeks, but there is a very clear indication that, although recent price increases were absorbed for specific items, consumers are not willing to continue paying more.

There has been a shift to lower clarities, especially SI, whose prices remain the same in the Rapaport list, despite the very rapid increase of prices for higher clarities. The main demand is for SI in high colors in all sizes. H and I colors in VVS remain the main staple for the Hong Kong market and virtually anything in this range sells well across a wide range of sizes.

China Woes Continue
The boom in China was expected to last at least until after the Olympics, but the government appears to be struggling to maintain the image of a prosperous China for the world to see. Rising food prices, an inflation rate of more than 8 percent, a stock market that is imploding and international protests over Tibet are threatening to spoil the Olympics and are giving the Chinese government a major headache.
T
he Canton Fair, held in April and considered an important indicator of the nation’s exports, was another disappointment this year with a mere trickle of visitors and a sharp drop in buyers from the U.S. Whether it is caused by the slump in the U.S. retail sector or by a boycott against China, the end result is a loss of exports to China’s major market. The sharp rise in the value of the yuan and high production costs make goods manufactured in China much more expensive than a year ago.

All these signs indicate that China’s booming diamond and jewelry trade will no doubt slow down as business between the U.S. and China goes into hibernation until the credit crisis in the U.S. is resolved. The International Monetary Fund (IMF) has estimated that the financial loss from the subprime problem could amount to $1 trillion, far higher than previously reported.

India’s Hong Kong Link
India has always had a very close relationship with Hong Kong in the diamond trade, initially as a supplier of diamonds cut in India and then used in the manufacture of jewelry in Hong Kong and China. However, in the past three years, Indians also have become important buyers at the Hong Kong jewelry shows, as the booming Indian economy and soaring stock gains have created a huge market for larger sizes in the domestic Indian marketplace.

The Indian stock markets also have been battered by the subprime mortgage crisis and it is reported that many diamantaires have not escaped the widespread savaging of investors. Most recent reports indicate that the feverish demand for large stones has also weakened and money has become tighter and there are delays in settling bills, which were previously paid with clocklike precision. In the past, Indian diamantaires would race to settle their accounts in order to get more diamonds to feed the frantic demand.

There is also an increase in the volume of Indian-cut diamonds of 1 carat and larger being sold in Hong Kong, and reportedly the sellers are more inclined to lower their prices in exchange for shorter terms or cash deals.

The Marketplace
• Large sizes continue to dominate demand. Also in demand: either the very best in color, clarity and cut or budget items in high colors in SI or lower colors in better clarities.
• 1 to 2 carats are moving well and the market is looking for better discounts rather than top qualities.
• Pointers continue to move well and their prices remain unchanged.
• Demand is weak overall for small setting sizes but there are pockets of demand for particular sizes.

Article from the Rapaport Magazine - May 2008. To subscribe click here.