Why diamonds have lost their lustre

Diamonds may be a girl’s best friend, but they have done precious little for investors lately.

Diamonds may be a girl's best friend, but they have done preciouslittle for investors lately. The Rapaport Diamond trade index,which tracks the average asking price of the top 25 best-qualityone-carat stones, has hit a near-seven-year low of around 7,400.In 2011, it peaked at 12,000. The price of rough diamonds fromkey producer De Beers fell by 15% in 2015, as a build-up ofsupply has coincided with a cooling retail demand.

The latterstems largely from a slowdown in China, the second-biggest retailmarket after the US, as Finanz und Wirtschaft points out, wherethe impact of a slowing economy has been compounded by acampaign against corruption. It will take some time for the supplyoverhang to be worked off, as mine output is only expected topeak in 2017. Don't expect a recovery in rough prices "for at least 12 months", analysts at brokerage Liberum told the FT.

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