You can add another item to the list of assets with surging prices: diamonds.
Prices for rough-cut gems — the kind of stones used to make an average engagement ring — were up 10% this week at the latest De Beers sale compared with the previous auction. Within hours, some of the stones were changing hands in the secondary market with an additional 10% mark-up.
It is the latest sign of a rebound in an industry which was in the doldrums until recently. The biggest miners had been sitting on billions of dollars of surplus stock. Jewellery has been a luxury winner of the pandemic, with wealthy, stuck-at-home shoppers who had little else to spend their money on splashing out on bling.
What’s next? While there are nerves in the industry over how long consumer demand will last when economies open up, for now there is no sign of a slowdown. “The rough market is hot. There’s enthusiastic buying across all rough categories,” says Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax. “There are supply shortages at the moment. That’s creating a sense of scarcity at every stage of the pipeline.”
Supercar pivot
Italian luxury car maker Ferrari NV has a new boss: the man who helped the iPhone sense when it has been tilted sideways.
Benedetto Vigna from chipmaker STMicroelectronics NV will take over as CEO on Sept 1. His appointment is a major moment for a sector that has rarely looked outside its own ranks for top jobs. Shares dipped as investors digested the surprise appointment.
Vigna brings technology experience to the company. One of his major challenges will be to strike a balance between traditional buyers who expect a roaring combustion engine and a younger generation keen to see a move to electric offerings, which Porsche and Lamborghini have done. Ferrari has lost ground to rivals who were quicker to embrace electric vehicles.
What’s next? “Appointing someone relatively young and from the technology field sets the tone for where Ferrari is headed,” says Tom Narayan, an RBC Capital Markets analyst. “The biggest issues this company will face, in our view, over the next decade will be adapting to the changing auto technology landscape as a luxury brand.”
Blockbuster drug
A big bet has finally paid off for Biogen Inc. On June 14, the US Food and Drug Administration (FDA) granted approval to the company’s Aduhelm, making it the first new Alzheimer’s drug in almost 20 years. The stock gained 38% after news of the clearance, the biggest single-day gain since drug officials first said the treatment appeared effective in November.
The approval was not without controversy. Evidence that the drug works is mixed. One of the doctors on an FDA advisory panel who resigned in protest called the clearance “probably the worst drug approval decision in recent US history”.
Aduhelm’s US$56,000-a-year ($74,300-a-year) price tag is also a big sticking point. Millions of patients might be eligible to receive it, raising the possibility of a huge bill for the healthcare system.
What’s next? The news is a potential game-changer for Biogen. Approval means “increased management credibility for its high-risk, high-reward development strategy”, and ensures the firm will have a growth driver as the patent expires on its multiple sclerosis treatment Tecfidera, says SVB Leerink analyst Marc Goodman.
And UBS’ Colin Bristow has modelled US$13 billion in peak US sales for the treatment.
Return flight
Boeing Co may be on the verge of a big, post-Covid sale. On June 10, news broke that United Airlines Holdings is in advanced talks for a large order that would include at least 100 of the aircraft maker’s 737 Max jets. Boeing shares rose as much as 2.85%.
The negotiations come as Boeing works to lift sales of the Max following two fatal crashes and a lengthy global grounding that still exists in some places, including the key growth market of China.
As the pandemic recedes in the US, demand for leisure travel is picking up. That is leading some airlines to look at upgrading their fleets for newer, more fuel-efficient models. The industry is also lobbying hard to loosen restrictions on lucrative trans-Atlantic travel.
What’s next? While the United talks are welcome news, any continued ramp-up in Max production hinges on it being cleared for flight by Beijing. “We estimate China orders, despite being included in estimates, are discounted by the market and any recertification announcement would be a major de-risking,” Jefferies analyst Sheila Kahyaoglu says.
Crypto alternatives
While Bitcoin may be slumping, that has not lessened interest in finding more creative ways to gain exposure to cryptocurrencies.
US regulators have repeatedly delayed approving any pure Bitcoin ETFs. But Invesco has filed to launch an ETF in crypto-linked equities. Invesco is just the latest issuer looking for alternative ways to give clients exposure to the space. Another ETF which would target companies exposed to Bitcoin, Volt Bitcoin Revolution, filed to launch this week.
Then there is software company MicroStrategy Inc. The firm just sold US$500 million of junk bonds to fund Bitcoin purchases, the first-ever such deal. Some of that demand came from investors who want Bitcoin exposure but cannot buy the digital coins outright because of how their funds are structured, according to a person familiar with the offering. Investors will get a 6.125% coupon on the bond.
What’s next? The deal is another sign of how the crypto backdoor is starting to open wider to institutional investors. “Bitcoin has arrived to Wall Street,” CEO Michael Saylor says in an interview with Bloomberg. “My mission is to carve a channel between the US$400 trillion ocean of conventional assets and the US$1 trillion Bitcoin pond.”
Photo credit: Bloomberg
