While the global 'central-bank-inspired' wealth effect has benefited the uber-rich more than anyone else, it seems China's burgeoning middle class is more than happy to 'settle' for mediocrity in their fascination with luxury goods. As Bloomberg notes [6], the demand for diamonds is so heavy (and less discriminatory) that the price of lower-quality gems has surged as the price of high-quality 'flawless' diamonds has been very subdued. Since the US equity market lows in March 2009, the best quality diamonds have appreciated by around 5-7% whereas the lower-quality 'imperfect' stones have gained over 35%. As one Antwerp dealer noted, "the cultural taboo of having to buy the finest diamonds is broken," as the 'snob effect' has disappeared. China (retail sales up 18%) surpassed Japan in 2011 to become the biggest diamond consuming nation behind the US but it would appear we need to add a 5th 'C' to the famous diamond ranking" clarity, cut, color, carat, and cheapness. Simply put, another dealer noted, "people have latched on to the fact that when you buy a lower quality diamond, there is not always a big difference in appearance."
This chart shows performance from 03/06/09 for high- and low-quality diamond prices. We have smoothed the high-quality series as it was very noisy. Low quality is up around 37% in this time against around 5.7% for high-quality.
[7]
Via Bloomberg,
China’s burgeoning middle class is buying diamonds so quickly that the price of mass-market stones is rising faster around the world than for top-quality jewels affordable only to the super-rich.
...
“The Chinese consumer’s fascination with luxury goods has grown dramatically, along with their pockets,”
...
China’s market was initially fueled by a rich elite pursuing the best diamonds available. As the economy grew, a new wave of buyers emerged, opening the market to lower-quality stones that form the bedrock of U.S. and European demand.
“The cultural taboo of having to buy the finest diamond is broken,” said Anish Aggarwal, a partner at Antwerp, Belgium- based industry consulting firm Gemdax. “Really high-quality was the sacred thing. You needed to buy fine diamonds, there was a snob effect. That has just disappeared.”
...
China surpassed Japan in 2011 to become the biggest diamond consuming nation behind the U.S. Retail sales of diamond jewelry jumped 18 percent to $9.2 billion in 2011. Sales in India gained 17 percent.
...
Sales of discretionary goods in China will grow by a compounded annual rate of 13 percent between 2010 and 2020, as shoppers in the world’s largest economy after the U.S. become richer, McKinsey & Co. said in a report in March 2012.
Rising demand will put pressure on stretched supplies. Diamond producers have struggled to find new large mines to replace aging assets. Production at many of the biggest mines is falling as supplies of more accessible diamonds near the surface are depleted.
...
“Traditionally, it was quality, and in particular clarity, that was the most important consideration, now it’s much more of a mixed bag,” said Gemdax’s Aggarwal. “People have latched on to the fact that when you buy a lower quality diamond there is not always a big difference in appearance. There is however, a big difference in price.”