Stock Fluctuations Lead Investors To Continue Searching For Diversity: Gold, Diamonds, Art, And Wine
Today’s Financial Times has a feature on investors who are turning to traditional hedges against stock market turbulence, and the way major diamond producers like DeBeers are ratcheting up their marketing and outreach efforts to get these people’s attention. Although diamonds fell mainly out of favor in recent years in many developed countries due to their sometimes controversial nature, diamond consortia have seen their fortunes turn around rapidly as they increased their foothold in emerging markets like Russia and China.
As the global economy’s nosedive begins to slow down and — according to some, stabilize — investors stung by the stock market turbulence, or new Chinese investors looking for their first large investments are quickly becoming the target market for diamond and gold producers and, interestingly enough, art auction houses. As the FT writes, however, there is no clear consensus whether diamonds or gold is a better investment destination. As global investors and sovereign wealth funds from emerging markets scour the globe, they are leaving no stone unturned.
De Beers has launched a global campaign to convince investors that diamonds are an alternative to gold as a safe-haven investment.
The move is a sign of the pressure on the world’s biggest diamond miner to find new markets following the collapse of traditional sales.
Stephen Lussier, De Beers’ executive director for corporate affairs, told the Financial Times the group had been approached in the past two months by “half-a-dozen” brokers linked to sovereign wealth funds and wealthy individuals. He refused to identify them but said talks were in early stages.
But analysts and investors said that the closed nature of the diamond market made them a much less attractive option than gold.
Brock Salier, mining analyst at Ambrian, a London-based resources investment bank, said the uncertainty that has gripped equity and currency markets had sparked demand for “hundreds of millions of dollars of something they can stick in a vault”, such as diamonds. An anonymous private buyer at a Geneva auction this week paid a record $9.5m for a rare blue stone from Petra Diamonds’ Cullinan mine in South Africa.
But Mr Salier added that diamonds represent a much riskier investment than gold. Unlike the yellow metal the stones, traded through auctions and private tenders, have no public market price and there is no instrument investors can use to hedge against fluctuations.
“[Global sovereign wealth funds] been so badly burned in equities they are likely to look further afield into holding resources and buying resource companies,” said Nigel Rendell, senior emerging market strategist at RBC Capital Markets.
“China has been stockpiling commodities. I wouldn’t be surprised if other sovereign wealth funds are doing the same.”
But he added: “Diamonds are of limited interest to a lot of people because of the difficulty in buying and selling. Gold remains the ultimate hedge.”
So why the connection between diamonds, gold, and art? These things share more similarities than most would initially think. First, all of them are highly liquid. In these times, when people often find they need easily-convertible assets for a rainy day, this feature has become a much more attractive feature. Also, gold, diamonds, and high-quality art are portable. You can buy them in one country and easily ship them somewhere else — a feature that real estate and luxury autos do not share. Finally, they are easy to convert into other global currencies. As we wrote yesterday, as the RMB becomes increasingly convertible and global in the next 10 years, this will be a major feature for Chinese investors in diamonds, gold, and art.