Financial markets have continued their rally from late September, despite the resurgence in the spread of COVID-19 in the northern hemisphere, and huge concerns about the upcoming US Presidential Election.
Whilst rallies like this are always good for owners of financial assets, the question of when do you sell, or at the very least rebalance your portfolio will be at the forefront of many investors’ minds.
This is especially true as many indicators point to the rising risks in financial markets, and in the economy, with the latest data in Australia for example pointing out that Australians as a whole still have confidence levels that are as bad as they were in the GFC.
We are also seeing forecasts that up to 20% of households expect to reduce spending on many items in the month to come, as some government support measures like JobKeeper and JobSeeker are wound back.
In this week’s update, we look at trends in sales of luxury items, and recent auction news, all of which support the notion that pink diamonds are set for a strong period of outperformance in the years to come.
Luxury sales to drive pink diamond demand
One of the key trends in markets and investing over the last decade has been the growth in preference for luxury goods. This can be neatly visualised in the chart below, which plots year on year percentage changes from 2010 to 2019 in:
- Real disposable income
- Consumer staples sales
- Luxury good sales
As you can see, luxury good sales have outgrown disposable income and sales of consumer staples in every year for the past decade, with the exception of 2015, with the difference being substantial in many years, and over the time period as a whole.
People like to own high-end items, and high-end investments.
Our belief is that this trend will not only continue, but likely accelerate in the decade to come. For whilst many households are struggling financially, with the impact of COVID-19 causing even more stress, there is no denying the continued growth of a global middle class, as well as the growth of a subset of investors and households who have grown and continue to grow much wealthier in current times.
Both of these groups can be expected to support pink diamond demand, and therefore pink diamond prices in the years to come.
For those that find themselves in the global middle class, many of whom live in emerging market nations in Asia, the Middle East and the Sub-continent, pink diamonds represent a way to display their wealth. They are the ultimate status symbol. They also offer a hedge against potential currency devaluation.
For those with meaningful pools of financial assets, an investment into pink diamonds achieves many things. They represent a way of diversifying an investment portfolio, protecting oneself against inflation, and a way of holding wealth discretely, outside of the financial system.
The opportunity to generate very attractive long-term returns is also a motivating factor, and one that is likely to strengthen as the closure of the Argyle Diamond Mine creates an acute supply shortage for pink diamonds.
These themes of diversification, inflation protection, discretion and wealth creation, as well as the opportunity to own a piece of Australian history often come up with clients at Australian Diamond Portfolio.
Many of them own their own home, have financial assets both inside and outside superannuation, and are looking at ways to secure and build on their wealth in the difficult years ahead.
For the reasons we highlight regularly in these articles, pink diamonds offer a unique solution in this regard.