Focus

Diamonds becoming an investor's best friend

By Shen Jingting (China Daily)
Updated: 2010-07-12 10:21

By mid-June, diamond prices had vaulted to their highest level since November 2008, according to PolishedPrices, an international diamond information provider. Its overall index of diamond prices is now 9 percent above the starting level for the year and around 11 percent higher than the same time last year.

The availability of diamonds is likely to decline in the future because few new mines have been discovered in the past 20 years, says the world's largest diamond company, De Beers.

"Due to the supply reduction in the following five years, diamond prices are about to rise by at least 5 percent annually," said Shao Zengyi, diamond analyst at the Beijing International Jewelry Transaction Center.

However, potential risks also exist for those investing in diamonds.

Compared with foreign countries that have fluid and transparent diamond markets, Chinese investors might find it difficult to sell their stones domestically because such channels in China are not available.

At present, few auction houses conduct diamond transactions and, if investors take their precious stones to pawnshops, they may only be able to get one-third of their value.

In order to calm investors' fears about reselling their diamonds and to boost diamond sales, domestic department stores have begun buy-back programs.

M&L became the first diamond seller in Beijing to offer to buy back stones it had sold.

A woman tries a pair of diamond earrings at a wedding expo in Beijing. [Zou Hong / China Daily]

In May, the store said its clients could sell their diamonds back to the company for at least the original purchase price.

In spite of the buy-back offer, the difficulty in reselling stones is holding back some would-be investors.

"Yes, I admit diamonds are precious and the resource is facing exhaustion but diamond trading is not as easy as stocks, houses, and even harder than gold bars," said Yang Dong, a financial analyst who works in Beijing's Central Business District.

"I don't think all diamonds are suitable as investments. For example, auction houses like big and flawless diamonds, instead of small and poor-quality ones, so people should not be blind about picking up their stones."