So far, 2018 has been a positive year for the diamond trade, with the US and China, the two largest diamond-jewelry markets, showing steady growth. In fact, in China, the jewelry-retail sector has experienced positive results after three years of decline.
Sales stagnated between 2014 and 2017 while the Chinese economy was transitioning from being dependent on exports and infrastructure investment to being more reliant on consumption. The government’s clampdown on corruption under President Xi Jinping also impacted diamond purchases. That program targeted the practice of offering officials luxury gifts such as expensive watches or wine, making it almost taboo to display any form of wealth, including jewelry.
Consumers seem to have acclimated to that new normal and gained confidence to spend. The government, meanwhile, having gotten its message across, has also relaxed its anti-corruption campaign. And while the transition to a consumer-centric economy is by no means complete, technology and the younger market are having a significant effect on China’s culture and spending habits. As a result, the major Hong Kong-based jewelers — Chow Tai Fook, Chow Sang Sang and Luk Fook Holdings — all reported double-digit increases in the last fiscal year, with improvement continuing through June.
However, growth is set to slow in the coming half-year, which includes important shopping periods such as the October 1 National Day holiday, Christmas, and the Chinese New Year, which this year falls on February 5.
It would be unrealistic to expect the same pace of growth in the current environment, according to Chow Tai Fook CEO Kent Wong, who spoke recently with Rapaport. Ongoing trade tensions with the US and the depreciation of the yuan currency are expected to impact consumer sentiment, and that will have a trickle-down effect on the diamond trade.
Already, the September Hong Kong Jewellery & Gem Fair, considered an important market indicator ahead of the holiday season, failed to provide its usual boost. Rather, it signaled that the diamond-market conditions of the past three months would continue in the short term, with quiet trading, stable demand for select items, and prices softening slightly.
We believe that is largely due to uncertainty in China. The latest edition of the Rapaport Research Report published last week outlines the factors impacting demand in the region, presenting reasons for short-term caution and long-term optimism. The September report also provides a more concise overview of global markets than previous editions, along with our proprietary Rapaport Diamond Price Analysis.
Diamond trading has slowed in the third quarter. Just how much of that is due to a seasonal slump remains to be seen, but China’s caution is certainly playing its part. This article first appeared in the September edition of the Rapaport Research Report. To download a copy of the report, click here and login with your username and password, or learn more and subscribe today.
Image: Hong Kong skyline. (Shutterstock)