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Hong Kong
By Karolyn Schuster
First-quarter 2013 economic reports showed the Hong Kong economy grew by 2.8 percent, compared to 1.5 percent in 2012, and the government said it is holding to its initial projection of 1.5 percent to 3.5 percent total growth in 2013. In the domestic sector, the Hong Kong Trade Development Council (HKTDC) said that “private consumption grew briskly by 7 percent year on year, buttressed by stable income and employment conditions. The downside risks in the external environment continue to stem from the eurozone economy, while the domestic sector is expected to stay relatively resilient.” Retail sales increased 13.9 percent year on year in the first quarter, compared to 9.8 percent in 2012. Polished diamond imports rose 4 percent in the quarter by value and 5 percent by volume, according to the Diamond Federation of Hong Kong China Ltd., while polished exports declined by 10 percent. Hong Kong’s net diamond account, representing total imports of rough and polished less total exports, rose 42 percent to $1.292 billion during the quarter.
“Local wholesalers are quite dependent on the China market, which has not seen the same pick-up in demand that Hong Kong and other Asian countries are experiencing,” said Simon Zion of Dehres. He attributed some sluggishness in the Chinese market to the fact that “China seems to still be settling in to the new government. This might account for the first-quarter increase in Hong Kong’s domestic consumption.” “There is still a large local Hong Kong market but it pales in comparison with the avid demand of the Chinese market,” said Gaston D’Aquino, marketing director for M.I.D. (HK) Ltd. But he noted “a very clear indication of tightness in financing, especially in the Chinese markets. Bank loans for the diamond and jewelry trade in China are almost nil, and only firms with very sound finances are maintaining an even keel. Most retailers rely on credit from suppliers. Delays in paying bills — and even nonpayment in some cases — have been more frequent and these reports have made the market very nervous.”
“Hong Kong used to be a niche market specializing in D to F in IF to VS1,” said Zion. “Sometimes you could convince a customer to buy VS2. Today, it’s a totally different and diversified market.” The diversification makes it hard to identify a specific trend or pattern in local consumption. “Most customers are still looking for a good deal,” explained Zion. “Some will buy SI1 and SI2. Some will buy triple good stones or even stones with strong fluorescence if the discount is large enough. But there is still a segment of the market that insists on larger, important D flawless diamonds. This diversity has helped solidify Hong Kong as the central Asian market for the procurement and sale of diamonds and diamond jewelry. Like we always say, ‘Everything is sellable here in Hong Kong.’” No matter what consumers are buying, price points reign supreme in all segments of the market, according to D’Aquino, whether for 10-carat stones costing more than $2 million, high-color SIs priced at $7,000 to $8,000, or lower-color SIs in carat sizes and pointers.
Diamonds as a store of value are appealing to investors in Hong Kong as well as Mainland China. “Chinese consumers have been favorably impressed by the stability of diamond prices and the fact that they show an upward trend against other investments,” said D’Aquino. “As property values cool down and the equity markets are subject to volatility, consumers are more amenable to put money into diamonds.” Zion agrees. “Locally, with the softening of the real estate market, customers are turning back to real tangible assets. The Hang Seng Index saw a considerable gain in May.” That, Zion said, combined with the record-breaking highs of Dow Jones, “has given a boost of confidence to the richer, more educated consumer. It also has encouraged investment-minded individuals with a strong diamond education and a strong understanding of the investment potential to buy large, important diamonds.” The Chinese government’s clamping down on corruption has discouraged ostentatious displays of wealth. “But diamonds, if not worn, can be stowed away without drawing attention,” said D’Aquino. And even in gift-giving, diamonds have found a niche because, he said, “it is the only thing that can compress such high value into something so small.” “Hong Kong is clearly the top city of choice for most Asian customers to buy their diamonds and diamond jewelry,” concluded Zion. “It’s also the top choice of most wholesalers and retailers because of all the options available and also because we have the top three jewelry shows in Asia.” That is not likely to change.Article from the Rapaport Magazine - June 2013. To subscribe click here.
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