RAPAPORT... July is normally when the diamond trade slows dramatically, as most Hong Kong people leave in droves to spend the summer holidays overseas. It is a time, because of the summer school holidays, that families spend quality time together. This year, however, due to the H1N1 virus and the economic slowdown, fewer people are traveling, so local retail sales, while still slow, are better than usual for this time of year.
Stock Market HighThe Hong Kong stock market has taken on a life of its own, and is presently higher than it was in the days before the Lehman Brothers debacle threw the whole world into a financial tailspin. Hot money from all over the globe is finding its way into both the Hong Kong and the Chinese equity markets, on the belief that these two markets are a safer haven than most for investments.
Although recent gains defy all fundamentals — with job losses at all-time highs and most companies still posting losses — it appears that market sentiment is being swayed by all those little “green shoots of recovery” appearing in the economy. But green shoots need good soil and nourishment to develop solid root systems before growing into sturdy plants. Unfortunately, these conditions are not present at the moment, taking into account all the trillions of dollars of wealth lost in the past few months.
In the meantime, people are happily delving into the market and are making money. This may be giving locals a false sense of security because all this hot money coming in can leave just as quickly if conditions overseas turn for the better, leaving Hong Kong investors holding on to highly depreciated pieces of paper.
In some small way, the local equity market gains tend to shore up retail jewelry sales. Although in general sales have shown small declines in recent months, they still are better than what might be expected in light of the present conditions.
Domestic demand in China is seasonably slower, but dealers are still in the market to buy merchandise in anticipation of an improvement in sales after the summer. At present, individual players are struggling to bridge the differences in prices between the producing and consuming markets. It appears that prices achieved at the cutting centers are higher than the present price levels in both Hong Kong and China. Dealers and retailers are still holding unsold inventory and are hesitant to buy new merchandise at a price that is higher than what they are able to sell their goods for.
In Hong Kong, there is strong interest in high colors in SI in virtually all sizes, and it seems that these have become as scarce as the H to K colors in VVS grades that are the mainstream goods in demand in this region.
Buyer BewareEveryone is seeking low price points because consumers have lowered their expectations and are happy to buy the “look” at a reduced price. But, in the quest for cheap goods, there have been reported cases of buyers being duped by diamonds sold with counterfeit certificates. These are usually High Pressure-High Temperature (HPHT) diamonds, cut to the same dimensions as genuine diamonds certified by world-recognized gemological laboratories, but then sold with counterfeit certificates nearly identical to real certificates.
Even in checking online with the certifying laboratories’ web pages, the diamonds match the descriptions exactly. Only when the buyers become suspicious and send these diamonds to the laboratories for actual verification is the fraud discovered.
Very crude attempts also are being made to sell diamonds that do not match their certificates in quality or color. This happened during the June Hong Kong show. Except for the few sharp buyers who were put on alert by the price discrepancies, there were many who thought they had concluded the deal of their lives by buying at way-below market prices and who then passed on their mistakes to unsuspecting clients down the pipeline.
It is normally a dead giveaway when you can buy diamonds much cheaper from one company while other sellers are pricing goods plus or minus a few percent from market prices. But in the past few months, due to the unprecedented pressure manufacturers and dealers were getting from their bankers, big price differences became the norm and diamonds were, in some cases, sold at giveaway prices. This lowered the guard of buyers.
The recent misleading and counterfeit instances have reminded dealers of the importance of knowing the source of the diamonds they are buying so they can assure their clients that they come from bona fide sources and are the same diamonds described in the accompanying certificates.
The Marketplace- SIs are the stones of choice in a color range from D to K in virtually all sizes. It should be noted that Hong Kong’s preference is for stones with no black inclusions.
- Fancy cuts are also moving well. Large princess cuts are receiving more attention due to their low price points. Pear shapes, especially in matched pairs, are popular. Heart shapes are also finding favor.
- 1-carat stones for the China market are moving well and demand is still strong for K-M carat sizes.
- Small setting sizes are still weak in tandem with low demand for diamond-set jewelry from the U.S. and European markets.
Article from the Rapaport Magazine - August 2009. To subscribe click here.