RAPAPORT... After a short respite in the gloomy world economy to celebrate Christmas and the New Year, the party is now over as the world waits for some indication as to how things will play out for the rest of the year. The first big news event of the year surely must be Barack Obama’s inauguration in the U.S. The world is watching to see how he will put into action his plan to address the U.S. economic crisis and reinflate the economy by creating more jobs and increasing spending.
The concern is that more and more negative reports coming to the fore are showing that the injection of trillions of dollars into the U.S. economy has acted more like a finger in the dike — a dike that is now showing new cracks and holes as companies disclose additional losses and forecast a continuing downturn in both profits and sales.
Ups and Downs
Hong Kong experienced quite an active Christmas period, with consumers splurging to take advantage of retailers’ slashing of prices. However, consumer spending seems to have slowed considerably in January, with some estimates putting the drop at more than 40 percent compared with December sales.
While the diamond wholesale business is still in the doldrums, even those retailers who did well over the holidays were buying very little for inventory once the holidays had ended. They will probably wait until after the Chinese New Year, which fell on January 26 this year, to resume buying — and then only if the situation improves.
The Chinese New Year is usually a time of reckoning for businesses in Hong Kong and it is expected that many companies will be closing down after the holidays this year. There are numerous rumors of forthcoming failures in the jewelry manufacturing sector, as well as among diamond dealers.
Diamond Haven
For the moment, the U.S. dollar is running strong as a haven, as equities and commodities take a dive. The Obama government already has indicated it will fuel the failed American economy by spending. To do that, it will have to print more money, which will in turn depreciate the dollar and create more inflation during a time of recession.
As a financial indicator, gold has come down from its highs of $1,000-plus and its price has stabilized in a band around $800, due to the fact that everyone is desperately looking for some place to park their money. While gold is considered to be compressed currency, diamonds, if they maintain their value, offer the same advantage in a smaller package.
Macau a Losing Bet
Macau was booming in 2008 and fast developing into the Las Vegas of the East, at one point even overtaking Las Vegas in both turnover and profits for casino operators. This was the setting for the Macau Jewellery & Watch Fair 2008, which was touted to be the show for the future of the jewelry industry.
Although it was expected that the affluent Mainland Chinese consumers would flock to the Macau show, which is held in the Venetian Casino Hotel in January, the crowds did not materialize. The show was saved only by Indian diamond dealers who came to the show to feed the frantic demand for diamonds that currently exists in India.
The financial tsunami that hit the global economies during the last quarter of 2008 prompted many exhibitors to pull out of this year’s show, so that the show shrank in size significantly. The falloff in traffic was compounded by the restriction on travel to Macau for all tourists from Mainland China, a restriction imposed to discourage gambling.
Buyer traffic was extremely weak. And the few who did attend came with a view to take advantage of the weak market by offering prices that, in a normal market, would be deemed ridiculous. Exhibitors were prepared to trade at the current low market levels but not at the levels offered. After the third day of the show, exhibitors reported that buyers came back with more reasonable offers to complete their purchases.
One good thing about a slow and small show is that buyers cover the show quickly and manage to see most of the exhibitors. Such a show also provides the time and opportunity to renew relationships with old clients and to meet new customers for the future.
Some exhibitors were very critical of the organizers, complaining that they did not do enough to attract buyers to the show, and they were very vocal about their dissatisfaction. In fairness to the organizers, they did more this year than in the past to attract buyers. There were people with placards in town and invitation cards in all the Venetian hotel rooms inviting consumers to the show.
While some exhibitors welcome direct consumers, the heavyweights of any show are the trade buyers. But, this year, the trade stayed home in response to slow overseas markets during Christmas. The lack of holiday traffic and sales will undoubtedly have a dampening effect on demand for the next few months at least.
The Marketplace
• K-M colors in most sizes are in demand as buyers look for low price points.
• Sizes larger than 5 carats in H-J colors are also finding some movement.
• Demand is good for SI clarity in all colors.
• Demand is relatively good for G-I colors in VVS clarities in a wide range of sizes.
• Small setting sizes are weaker in both rounds and fancies.
Article from the Rapaport Magazine - February 2009. To subscribe click here.