A new exchange offering diamonds as an asset class in Singapore with the aim of creating an investment market and benchmark price for the precious stones recorded a relatively low turnover in the first half of this month. Singapore Diamond Investment Exchange Pte. Ltd. (SDiX) posted turnover of just under $3.5 million in the first two weeks of August, according to data provided by SDiX, up from $1 million in May, the first month of trading. That equates to a total of around 1,500 stones traded in the first half of August, compared with 274 in the whole of May. While growth has been fast, volume remains relatively slight. As of 2014, only 5% of the global diamond trade was for investment purposes rather than destined for retail sale, according to Bain & Co estimates.
Among the problems the exchange faces, the Wall Street Journal reports, is how to price diamonds, which are all individual, unlike gold bullion which can be divided up into varying quantities and valued by weight. In addition, a market for diamonds would only be useful if it was representative of the global market for the precious stones, which, due to its lack of transparency, would be difficult to measure. SDiX says it is able to get around the individuality issue by packaging a large, fixed number of very similar diamonds together. The physical diamonds remain in storage in a free port in Singapore, or in Mumbai.
The exchange must also try to convince asset managers that diamonds are a valuable addition to their portfolios. “Diamonds fit the general thesis around physical assets, which are a hedge against massive currency depreciation,” said David Pinkerton, chief investment officer at Switzerland-based Falcon Private Bank Ltd. “I would be much more drawn to other precious stones that have much less availability rather than diamonds,” he said, noting that he isn’t aware of any clients making specific queries about diamond investments.