Are diamonds the new best friend of investors?
What can you do with HK$2 million to defy inflation? Buying funds, bonds, equities, properties and gold are some of the usual options for Asian investors.
But now a private Singapore-based diamond broker is encouraging investors to include the sparkling gems in their portfolio.
While diamonds are known to have much lower liquidity as an investment tool compared to equities and gold, and no standard benchmark for valuation, diamond experts say the gems are a good option in this time of economic fluctuation given their current low pricing, low risk level and good prospects.
'Shares and properties may give higher returns but the volatility is also much higher. With many diamond mines set to be depleted in the coming years, wholesale diamond prices could go up by 30 per cent in 2015, and even double by 2020 due to expanding demand,' said Shlomo Tidhar, chief executive of the Singapore Diamond Exchange (SDX) - a diamond broker that plans to set up an office in Hong Kong later this year.
Distinguishing itself from the now-defunct diamond investment trust Thomson McKinnon and the listed diamond fund Diamond Circle Capital, whose share price has more than halved since its debut in 2008, SDX said it sold portfolios of loose diamonds at wholesale price to individual investors.
A US$250,000 budget could buy nine to 10 one-carat diamonds rated D-flawless - which might sell in jewellery stores for around US$35,000 per carat.
Investors can store their purchase in SDX for a fee or keep the gems themselves. The company provides a quarterly report updating them on global diamond prices and helps source buyers, charging 2 per cent of the transaction value when the investor decides to sell.
While fund managers and property agents said volatility in stock markets and new policies against property speculation had dampened transactions in the two sectors, they doubted if diamonds could ever become a popular investment vehicle.
'If you have millions of dollars in savings, it may be a good idea to keep some for diamonds, which are a long-term investment,' said Alex Wong Kwok-ying, asset management director of Ample Capital Group. 'But it won't generate cash and dividends like equities and bonds do.'
Ricacorp Properties' head of research Patrick Chow Moon-kit said that while property prices might not see big increases in the near future, real estate would remain a popular investment for Chinese.
'With HK$2 million you can buy two parking spaces in Whampoa Garden, or a medium-size flat in Tin Shui Wai, which could offer you an annual rental return of between 4 and 5 per cent,' Chow said. 'Even if economies remain bleak like now, there should still be an organic growth of about 5 per cent a year in the value of the assets.'
Diamond sales slowed during the first six months this year as a lack of funds and worries over consumer demand hit confidence.
The wholesale price of a one-carat diamond rated D-flawless sank nearly one-fifth to US$22,000 this month from US$27,000 last July.
But Tidhar noted the price was still higher than the US$19,500 in February 2010 and said it was expected to rise again next year.
Luk Fook's business director Samuel Wong Wai-tong said that even if someone wanted to invest in the gems, they could always buy jewellery instead of loose diamonds.
'Like gold, you can sell old diamond jewellery back to us to gain the price difference and in the meantime you can also wear it,' Wong said, adding that diamond retail prices were about 20 per cent higher than those for loose diamonds.
A private Mongolian investor made headlines in Beijing last week after buying 104 diamonds for 15 million yuan (HK$18.39 million) in a diamond shopping mall in the city.
Diamonds have been eye-catching for mainland investors recently, with retail prices nearly tripling since 2009. The investor told mainland magazine Mirror that he believed diamonds were a safe haven for investors keen to avoid uncertainties in the stock and property markets.