Rapaport Magazine

Reign of Uncertainty

Hong Kong Market Report

By Gaston D’Aquino
RAPAPORT... The diamond markets in the region are showing signs of slowing down in response to the measures taken to dampen the booming Chinese economy, which have caused the stock markets in Hong Kong and China to fluctuate wildly. The outlook for the near future is that this sense of uncertainty will affect the mood of the region, since we have seen in the past that other markets take a hint from what is happening in China.

While this uncertainty has some effect on the mood of consumers, demand remains steady. On the high end of the scale, you have the wealthy, who are still in the market for large diamonds but have become very demanding about what they will buy. Stones that stray from the top grading in cut and proportion are not easily saleable, as buyers demand very high standards for high-priced purchases. On the other end, demand is softer for regular market goods, as there is such an abundance of these, and no one is in a hurry to buy, especially retailers.

Many of the marketing programs to promote specific diamond cuts, whether they be ideal cuts or hearts and arrows or new fancy shapes, tend to spark some interest for a while, but then seem to fizzle out.

Value Retained

Consumers in this part of the world look for one thing above all else: that the diamond they buy retains its value and that it can be converted into cash when needed. They hear how much diamonds have been going up lately, and feel that, in many cases, they should now get more than what they paid for them.

Unfortunately, sellers can realize a lot less than what they paid for their diamond if it is not one of the standard cuts, and they definitely are not getting back any of the premium that they had to pay for some of the new diamond cuts.

Some of the more established jewelry companies do spend quite a lot on marketing, but the main message they promote is the integrity and history of the company. This integrity is backed by a buy-back policy from these companies, which gives the clients confidence in their purchases.

Many smaller retailers do not have the financial strength to offer this reassurance because they work on goods taken on memo and rely on cheaper prices to attract clients, which makes for small profits. When customers come back to these retailers to return goods or offer them in exchange for something else, the smaller retailer cannot accept them, and this alienates the customers from doing further business with the retailer.

Tour Company Scandal

Lately, there has been extensive media coverage alleging that some Hong Kong jewelry companies have been ripping off tourists from Mainland China. These companies reportedly work with tour companies in China that offer very low prices to visit Hong Kong. The tour companies then herd the tour groups to specific shops, encouraging the tourists to buy with the illusion that they are being taken to wholesale outlets. According to the reports of the schemes, the tour companies have an arrangement to collect rebates from these jewelry companies and these can be quite hefty, so the merchandise is usually highly inflated in price to cover the cost of the rebates.

In addition, some of the merchandise is fake or not consistent with the description on the labels displayed. Goods confiscated by customs officers in these companies showed that jewelry labeled as made in Italy was actually made in China and some of the stones set in jewelry were not natural but treated.

The Hong Kong government is undertaking a big marketing drive to allay the concerns of the Mainland tourists. More than 13.5 million Chinese tourists visited Hong Kong last year, and diamonds and jewelry are some of the main purchases during the visits. The main attraction to buy jewelry in Hong Kong is that there are no sales taxes or value-added tax (VAT), so prices are more attractive than buying in Mainland China.

In an effort to contain the damage done to Hong Kong’s image with shoppers by the recent allegations, the government is saying that heavy fines and threats of closures for companies found to be infringing on proper trading practices will be imposed. Companies have also been urged to extend the 14-day, money-back guarantees to six months from date of purchase.

Despite the government’s damage control, it is feared that tourism from China during the Golden Week holidays in May might decrease by more than 50 percent. Tour companies already are reporting booking cancellations because of the recent news reports.

The Marketplace

• Large stones, especially 5 carats, are in very strong demand with 3-caraters also moving well.
• 2-carat sizes are weaker, but can still be sold if prices are attractive.
• Demand is normal for 1 to 1.50 carats but there is oversupply in 1-carat sizes.
• 0.50 and larger with GIA dossiers are in demand, especially 0.80+.
• Smaller pointers are weak.
• 1/5 to 1/10 for the China market
continue to be in high demand.
• Demand is good for 1/100 to 1/200 and smaller Indian goods.
• Fancy cuts in good models are moving well in all sizes.

Article from the Rapaport Magazine - May 2007. To subscribe click here.

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