Rich swap stocks for art: Investment, passion or a bit of both?

ART MARKET INVESTMENT TRENDS

A recent Deloitte-ArtTactic study concludes that the wealthy are allocating more funds to art, driving up art prices to record levels, despite the global financial crisis and flat or negatively performing equity markets. What is behind this trend and is it sustainable, or even true?

'I Can See the Whole Room... and There’s Nobody in It!' (1961) by American pop artist Roy Lichtenstein was bought in 1988 for USD2 million and in 2011 fetched USD43.2 million at auction. Photo credit: Christie's via Bloomberg.

Art outperforming the S&P 500?

As Patrick Mathurin of the Financial Times highlights in his (much contested) January 2012 article,

The art market defied the economic gloom to return 11 percent to investors in 2011, outpacing stock market returns for a second consecutive year. The performance of the Mei Moses All Art Index, a leading barometer of art returns based mainly on paintings sold in New York and London, beat the total return of the S&P 500 Index of US equities by about 9 percentage points. The gap, the largest since 2008, was driven by strong growth in Chinese demand and high prices for the work of popular artists such as Andy Warhol.

Click here to read our article on Chinese version of the Mei Moses Index, published on Art Radar in 2009.

Chang Dai Chien (Zhang Daqian, 1899 - 1983) recently became the top revenue-earning artist at auction, beating Pablo Picasso.

Rising art prices: Bubble in the making or shift in market dynamics?

Despite Mathurin’s confident stance on art as a burgeoning investment option, some in the industry are sticking by their belief that art is neither a good investment nor a valid investment asset class and that not just any wealthy art enthusiast could buy art and make a killing. However, the Deloitte-ArtTactic study highlights fundamental changes that suggest that the “playing” of the art market is not only here to stay, but that it is poised to grow substantially, not just amongst the super-rich but also among those simply with high net worth. This could largely be a result of the impact of technology, the growth of infrastructure supporting art investment and the rise of China’s art market.

Technology and the art market

The Internet and the development of online art fairs, online art exchanges and auctions are changing the way art is promoted, valued and transacted, and is helping to increase transparency, liquidity and the geographical reach of the art market.

A pilot art market opened in a north Chinese city called Tianjin to allow small investors to buy shares in the ownership of art works.

Infrastructure supporting art as an asset class

There is increasing accessibility and liquidity to support investment in art due to the growth of art funds (conservatively estimated at USD960 million in 2011 and growing), the availability of art loans (where artworks are used as collateral) and increasing art advisory and art related services offered by private wealth managers.

Selling and buying art in China

The demand for Chinese art has been supported by a boom in art funds (the worth of which was estimated at over USD320m in 2011) and the growth of art exchanges (there are currently six exchanges, with another thirty in the process of development). Cultural industries have also been singled out by the local government as one of the key drivers to be supported strategically for the country’s economic growth.

Zeng Fanzhi's record-breaking 'Mask Series No. 6' (1996) was sold for just over HKD75 million (USD9.7 million) at Christie's Hong Kong in 2008.

The A in SWAG

Joe Roseman, creator of the acronym ‘SWAG’, which denotes the assets silver, wine, art and gold, is among those that believe in art as an asset class. He notes that the value of tangible assets, such as those in the SWAG grouping, can only go up as prices are fueled by increasingly indebted governments printing more money, leading desperate investors to rush to protect their wealth by investing in physical assets, which are typically limited in supply, have longevity, are perceived as desirable, correlate to rising wealth and are easily stored and transported. Nowhere is this capital preservation instinct more obvious than in China, a country that, according to market information provider Artprice, has the largest art market in the world by fine art auction revenue.

So, can (and should) art be classified as an asset class for investment purposes? Leave your thoughts in the comment section below.

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Related Topics: business of art, market watch, auctions, art and recession

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Rich swap stocks for art: Investment, passion or a bit of both? — 4 Comments

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