Typhoon, Trade Wars and Currency Lows Dampen Hong Kong Shows
September 24, 2018
Business at the September Hong Kong Gem and Jewellery Shows was patchy despite a strong world economy. Buying was cautious and buying of higher-end diamonds and coloured gems tended to be against existing or anticipated orders. In addition, many key buyers left the show after two days because Typhoon Mangkhut, the most intense storm ever recorded in Hong Kong, forced the show to close on 15 Sept. The show reopened on time the following day, but with fewer buyers.
One of the reasons for caution was the escalating trade tensions between the U.S. and China. A new round of tariffs was announced during the show, leaving buyers and exhibitors wondering where the dispute will end.
"There is so much uncertainty over how much damage this trade war will cause, and even more that it could get worse," said one key exhibitor who explained that it will have a dampening effect on China’s and Hong Kong’s economies. "People do not want to commit to large orders in this atmosphere."
Another Hong Kong industry executive noted that the gem and jewellery trade did well during the first half of the year – until the trade war began to escalate.
That caution brought a strong increase in memo orders, which banks have been trying to curtail because they reduce dealers' already slim profits and hinder industry liquidity.
Adding to the economic uncertainty was the volatility of the international currency market, with the U.S. dollar rising against many currencies. The Indian rupee hit an all-time low of 71 to the dollar during the show, while the Japanese yen and other Asian currencies also fell. This made diamonds, gemstones and gold – typically priced in U.S. dollars – more expensive in local currencies and that much more difficult to sell to local consumers.
Much of the traffic at the Asia World Expo diamond and gemstone show was international dealers, not retailers, who came to fill orders for special stones or to add to their stocks before the autumn season. Diamond dealers found there was an increase in demand for fancy yellows because prices for all but the extreme top vivid had softened, making them much more affordable.
In colourless commercial goods, larger dealers with established local clientele saw respectable orders, but smaller exhibitors and those without a strong local client base found business very slow. All of the exhibitors lost a lot of sales opportunities because the storm wiped out the final day of the show.
Mozambique ruby dominated in the coloured stone section, accounting for as much as 70% of all ruby in the market by some estimates. Fine and good quality emerald was also plentiful at the show. In both cases, demand was lower than supply, although dealers insisted on keeping prices firm. Blue and fancy colour sapphire was scarce in all qualities, except diffused or heavily treated material. Paraíba tourmaline was also plentiful at the show, with some stones as large as 35 carats. Demand for this has subsided in the last year, but prices remain high.
At the Hong Kong Convention Center Show, manufacturers of finished jewellery also found buyers cautious for the many of the same reasons, despite the fact that major Hong Kong retailers such as Chow Tai Fook and Chow Sang Sang reported positive results. Local jewellery makers have adapted, offering more petite designs with smaller stones at lower price points.
The show opened to ominous storm warnings and reports of heavy damage in the Philippines, which touched off a rush of overseas buyers trying to leave Hong Kong. The storm hit the city with ferocious power, blowing out the windows of major hotels and downing trees. It was, however, very fast moving and the Convention Center show reopened the following day with business as usual.
"Typhoons are part of the business here in Asia," one pearl producer said. "We have learned to live with it and get through it."
De Beers sold $505 million (£384 million) worth of diamonds at its September cycle (sight), about 4% less than at the previous sale and on a par with the same cycle held last year. The company, citing slow demand for small, low-quality diamonds and a sharp decline in the rupee, allowed clients to defer buying such goods until later in the year or early next year.
Russell Shor is senior industry analyst at GIA in Carlsbad.