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When one looks at the current state of the diamond industry from a broader macro perspective one is left to ponder whether an investment play on diamonds at the moment is essentially a bet on the continued macro-econo..

14 Nov 2011

by Saul Singer
Proponents of the diamond industry will hastily point to China’s strong growth of diamond sales as one of the key underlying demand drivers that will continue to support the healthy state of the diamond industry into the medium term. Within a very short period of time diamond sales in China have grown exponentially from being virtually non-existent only a decade ago to around $8bm today making it the second largest diamond consuming market after the Unites States. As such there has been a considerable focus from within the diamond industry towards China over the last few years with no signs of this abating in the near future.

This is all well and good and bodes well for the industry, however when one looks at the current state of the diamond industry from a broader macro perspective one is left to ponder whether an investment play on diamonds at the moment is essentially a bet on the continued macro-economic strength of China or whether the underlying fundamentals of the diamond industry have more depth, and if so, what is the next frontier for spurring continued demand for diamonds.

It is clear that diamond demand is highly correlated to macro-economic measures such as GDP per capita and levels of disposable income. However the capacity of a given emerging geographic market to maintain a sustainable level of strong demand growth for diamonds goes beyond macro-economics and into the psychological, social and cultural dimensions of effective marketing on the one-hand and the propensity of the consuming market to spend on luxury lifestyle items on the other.

Taking these factors into consideration, South America as a whole and particularly Brazil, is being earmarked as a robust emerging diamond consuming market. With the largest and fastest growing economy in Latin America it seems like Brazil has learnt important economic lessons from its own recent history as well as those of its neighbors and has implemented relevant economic strategies and policies that should ensure continued economic stability going forward. Moreover, Brazil has the requisite ‘mind-set’ necessary to uptake increased diamond purchases. As a commodity-based and resource rich economy that has its own diamond production, there is already an appreciation for diamonds by the Brazilian financial sector. Furthermore, the extraverted and open cultural norms should make the diamond story an easy sell to the increasingly affluent middle-class consumers who already have a strong affinity to gemstone jewellery. 

Notwithstanding other strong emerging diamond consuming markets such as India and Turkey about which plenty has been written about, other smaller emerging economies also show good prospects for strong demand growth for diamonds. Although very much niche markets, Central Asian countries such as Kazakhstan and Turkmenistan, which are some of the fastest growing economies in the world today, are untapped diamond markets with a heightened desirability for tangible assets. 

Although it is clear that China is the most potent emerging diamond consuming market we do see considerable demand coming from tertiary emerging markets into the medium term underpinning the strong fundamentals of the global diamond industry which should continue to support the upward diamond price trends into the medium term. 

Saul Singer is a partner at Fusion Alternatives Investment Management, an innovative investment house and the leading alternative investment asset manager specialising in investment diamonds. Fusion Alternatives does not hold any diamond inventory and aims to give expert and independent insight into the global diamond market. Courtesy:www.fusionalternatives.com

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