Is Chow Tai Fook Planning Something For The Global Fancy Color Diamond Sector?
In the last year, Chow Tai Fook, the world’s leading jewelry company both by sales and market exposure, has been acquiring unique fancy color diamonds both in public and in private mode. It is not surprising to us in the least that important fancy color diamonds are being bought and sold – but when numerous of these are being acquired by the same institution, it begins to make one wonder. What are the big plans here? Does Chow Tai Fook know something the rest of us does not? Is the buying spree for hedging purposes? Educational? Or just plain asset diversification?
Rare Fancy Color Diamonds
In the last year, Chow Tai Fook acquired the largest Fancy Vivid Green in the world, the Aurora Green diamond. Exactly one year ago at the Hong Kong Christie’s auction, they paid the record price of $3.3 million per carat, by far the highest per carat ever paid for any green diamond at auction. The Aurora Green diamond is a 5.03 carat Fancy Vivid Green radiant cut diamond.
The 5.03 carat Fancy Vivid Green “Aurora Green” diamond Image credit: Christie’s
Chow Tai Fook also acquired the largest Fancy Vivid Pink diamond in the world, The Pink Star diamond. This occurred less than two months ago at a Sotheby’s Hong Kong auction where Chow Tai Fook paid over $71 million in total for the 59.60 carat Fancy Vivid Pink diamond. This is the largest sum of money ever paid for a single diamond or piece of jewelry.
The 59.60 carat Fancy Vivid Pink “Pink Star” diamond Image credit: Sotheby’s
In both cases, Chow Tai Fook made the acquisition in an open, public forum. Why? It could have acquired both diamonds on the phone, in a private manner, which has been the tradition in the diamond industry for decades. Why the public appearances for acquisitions?
When the largest global jewelry retailer in the world makes such a move, it is most likely well planned and well thought out. Currently (as of May 30, 2017), Chow Tai Fook has a total market value of HKD $83.5 billion, or roughly $10.7 billion. It acquired the Aurora Green and Pink Star diamonds for about $87 million in total, while its share price concurrently increased from HKD 5.31-HKD 7.8 per share to now being HKD 8.5 per share – a 60% overall increase year over year.
Its share price reached a peak above HKD 12.8 in January 2012, and was on a downward spiral until year-end 2015 when it reached an approximate value HKD $4.20. Since early 2016, it has been on a reverse trend upwards. The company still has about a 50% increase before it reaches its old high, and we are quite optimistic it will reach it (full disclosure: I do not own any Chow Tai Fook shares whatsoever). I am as optimistic about Chow Tai Fook as I am about Petra Diamonds. I have recommended Petra Diamonds shares since it was trading at around 80 back in 2015, while now it is around 130, after reaching a high of 165.
Chow Tai Fook’s share price behavior, January 2012 – May 2017
Can it be that the public manner in which Chow Tai Fook acquired the diamonds helped its share price increase? if so, then the investment was well worth it. Perhaps this kind of behavior led investors to have renewed confidence in the company, which in turn led to stronger trade prices for shares.
What is Chow Tai Fook planning for the future? Perhaps it will acquire more rare and unique diamonds. Maybe Chow Tai Took are also the ones who acquired the Apollo Blue and Artemis Pink diamonds? Perhaps Chow Tai Fook chooses to make public acquisitions in its home town Hong Kong, while it makes its acquisitions outside Hong Kong in a private manner? But why?
I would propose that the largest jewelry retailer in the world may be working on a large-scale education effort to expose unique and famous fancy color diamonds in a museum style setting. It has been done before on many occasions by other entities in the diamond market, but it has never been done anywhere in Asia. Chow Tai Fook has the resources and abilities for such an effort. This has been occurring in the world of Art collecting and investing. Asia’s share of global art acquisition is growing, and in china it is already a leading force. Diamonds are often compared to art in terms of investment in luxury items. Diamonds are lagging artwork by only a few years in the Asian market, but are catching up to it rapidly in sales and turnover. One of the main forums where art awareness and appreciation can proliferate is in museums, and many diamond traders, fashion houses and companies have chosen to use museums to proliferate diamond education and awareness as well.
The Smithsonian exhibit of the Hope Diamond, the most famous fancy color diamond in the world, in Washington, D.C.
So perhaps Chow Tai Fook had both a short term and long term agenda in these major diamond purposes – short term, to boost investor confidence in company performance, and long term, to push color diamond awareness in the market. It would make sense for Chow Tai Fook to initiate a diamond museum setting in Asia since they are the largest and most influential retailer. It will increase exposure and knowledge about diamonds to the public, as well as to the investment community. This will inspire further investment and acquisition by both private individuals as well as institutions into acquisition mode of these rare gems.