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Hong Kong
By Mary Kavanagh
The unexpected devaluation of China’s yuan on August 11 by the People’s Bank of China has caused uncertainty in the market worldwide. The initial drop in value of 1.85 percent on that date was the biggest decrease in a single day in more than 20 years. The currency was further devalued the following day and as of press time has lost 3 percent against the U.S. dollar. A weaker yuan means a more expensive Hong Kong dollar, which could negatively impact retail and wholesale sales in the city as well as foreign trade.
Reactions from the marketplace were varied regarding the potential effect of the yuan devaluation. “We expect it to impact our diamond wholesale business as it’s going to add more challenges to the diamond industry by increasing diamond prices to the final consumer,” said Alon Garty of wholesaler Windiam Asia and retailer Van Eyck Fine Jewelry. “We do not expect the devaluation to influence our Van Eyck Fine Jewelry business as we’re targeting a very small niche of wealthy customers, who are not effected by minor price differences,” he added. A spokesperson for Chow Tai Fook said it was still too early to evaluate the impact of the yuan devaluation. “But so far we have not seen any change in our business in Hong Kong, Macau and Mainland China since the devaluation.” Vinnie Yiu, director at Brilliant Trading Company (BTC), a diamond manufacturer, wholesaler and retailer, said people are still going to propose and buy engagement rings and October through December is peak season for that. “I don’t think the currency devaluation will have much effect on the retail market in general, because I think all the shops will offer big discounts to attract customers,” he said. “Manufacturers in China are not making any profit from cutting rough diamonds, so the 3 percent devaluation will have a minimal impact and most subcontracted factories haven’t been working since early 2015,” he added. Nancy Liu, president, Forevermark Asia Pacific, was not so concerned about the impact of the yuan devaluation on diamond jewelry demand in China given the latest figures from the National Bureau of Statistics of China (NBS), which show that in China sales of jewelry, including gold, increased by 14 percent in July. “Demand for diamond jewelry in Mainland China continues to be strong, driven by growth in private consumption,” she said. “Diamond jewelry in both bridal and nonbridal segments continues to increase not only in first-tier cities, but also in emerging middle-class lower-tier cities. The moderate devaluation of the Chinese yuan will be helpful to stabilize the macro China economy, but the correlation with diamond jewelry demand will not be as strong as the factors we mentioned before, such as strong demand.”
Time will tell if and how the yuan devaluation will impact the already troubled Hong Kong retail market. The total value of retail sales fell yet again in June by .4 percent, and according to Caroline Mak, chairman of the Hong Kong Retail Management Association (HKRMA), the prospects of an upturn are poor. “The majority of our members forecast that overall retail sales will continue their declining trend in third quarter 2015, with no particular favorable factors in sight,” she said in a statement. The value of total retail sales for the first half of 2015 is down 1.6 percent compared to the same period last year. The jewelry, watches and valuable gifts category recorded its highest drop year-to-date, decreasing by 15.9 percent in value and 14.5 percent in volume.
“Business over the past six months has been challenging due to uncertainty in the global environment and the weakened Chinese economy,” Garty said. “Furthermore, we see less Chinese tourists coming to Hong Kong to shop for luxury goods,” he added, noting that wholesale customers were generally taking less and less risk and working on an order basis. According to Yiu, the “summer was slow” and looking ahead, the outlook is poor for October, the month of the National Day Golden Week holiday — usually a peak shopping period for sales — and Christmas. “We need a major boost to get the tourists back to Hong Kong to shop rather than traveling elsewhere. In particular, we need to get back the wealthy Chinese, not just those on package tours,” he said.Article from the Rapaport Magazine - September 2015. To subscribe click here.
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