03 Jul 2019

New Financial Year Begins With Another Rate Cut

The new financial year is a great time for investors to take stock of their investment portfolios and look at which asset classes they want exposure to, in order to best protect and grow their wealth in the years ahead.

This year, there is an even greater sense of urgency when it comes to investments, due to a handful of key factors, including:

  • The continued decline in Australian housing prices
  • The Australian dollar dropping below USD $0.70
  • The RBA cutting cash rates to a new all-time low of just 1%

On top of this, it’s also been a really volatile year in the share market.

Overall performance was OK, but at one point the ASX was down over 10%, trading below 5,500 points in late December 2018, as markets around the world went through one of their worst periods since the GFC.

The last 6 months have been much kinder, but that isn’t because the economy is in a stronger position. Indeed, quite the opposite, the economy is slowing down, meaning that the primary reason that the share market rose is simply because interest rates are being cut, and investors feel forced to take more risks with their money.

Make no mistake, this is not good news, and it has the added disadvantage that it is making it impossible for those wanting to save money in the bank, as the interest they earn is less than the rate of inflation.

The trend of ever lower interest rates is unlikely to end anytime soon. Indeed, by Christmas 2019, or mid 2020 at the latest, many economists think the cash rate in Australia will be just 0.50%.

From an investment perspective, this means that cash in the bank, as well as the bond market, will continue to be losers in real terms. The lower rates should help property, but with lending restrictions still in place, the absence of huge capital inflows from China, less demand from Australian investors and huge swathes of apartments set to hit the market, there won’t be a new boom.

Add all these points together and we think that as the new financial year gets underway, rare coloured diamonds are one asset class that should be on your investment watchlist.

The CTF Pink Star. One of the diamonds featured in the Financial Times article ‘How to invest in jewellery: a guide to the volatile market’.

Financial Times Talks Diamonds

The Financial Times just published an interesting article this week, titled “How to Invest in Jewellery: a guide to the volatile market”. Whilst the headline and much of the content was jewellery related, there were more than a few useful insights and information points that were relevant for rare coloured diamond investors.

These included:

  • Global demand for diamonds recently hit a record high of $82 billion.
  • Performance of high-end jewellery assets, as well as rare coloured diamonds outperformed New York real estate, gold, and US equities, according to Knight Frank’s Luxury Investment Index.
  • Consumer preference in the diamond market is changing, with greater demand for rare, colourful “fancy” coloured diamonds, as opposed to traditional white stones.
  • More demand from Asia is helping drive prices up.
  • Only one in 10,000 diamonds has a “fancy” colour, according to the GIA.
  • Because diamonds don’t have a standard price per carat, it isn’t always easy to assess value, which is driven by carat, colour, clarity and cut. Expertise, and experience are required.

On the whole, we think there are some really useful lessons for would-be rare coloured diamond investors in this article, which align with many of the key messages we communicate with our clients at Australian Diamond Portfolio.

The first and most obvious is the investment potential that rare coloured diamonds offer, both due to rising demand, as well as restrictions on the supply side, which will only be exacerbated by the pending closure of the Argyle Mine in 2020.

Just as importantly, given rare coloured diamonds are a boutique asset class, it is also critical that potential investors work with experienced diamond specialists to make sure they are investing only in truly rare stones that offer the best long-term return potential.

Read the article on Financial Times (Subscription Required)

If you would like to know more about investing in rare coloured diamonds, or have any questions about this article, please get in touch.

 

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