Is art still a safe bet for investors?
As research from the last crisis shows, when investor confidence evaporates, all assets start to correlate, something many art market insiders like to forget
By Anders Petterson. Comment, Issue 227, September 2011
Published online: 12 September 2011
The financial crisis that started in 2008 has returned to haunt the art market once again, just when a run of good auction results was reassuring collectors and investors (the contemporary sales in London in June raised £200m over three evenings alone). July’s most recent ArtTactic US & European Confidence Indicator (a proprietary index that every six months polls a sample of 130 key international collectors, curators, auction houses, dealers and art advisers) saw an 8.3% increase in the first six months of 2011, the fifth consecutive rise from its low in November 2008. At the same time, those polled showed a strong divergence between their outlook for the wider economy and for the art market, a trend similar to what we saw in November 2007 and May 2008.
But does this divergence mean art experts are in denial, or that art is increasingly being perceived as a safe asset in an otherwise risky world? Or are we in a market scenario like that of autumn 2007, when the art market steamed ahead for another 12 months despite the brewing banking crises and the collapse of British bank Northern Rock? As in 2007, we might not yet have seen the true extent of the iceberg that we are about to crash into.
So what has happened to the art market since Lehman Brothers was declared bankrupt in September 2008? The downturn had an immediate impact on auction turnover, which dropped 81% between May 2008 and May 2009. The auction prices of the market’s previous favourites—such as Damien Hirst, Jeff Koons and Takashi Murakami—came under severe pressure in the months that followed, with certain works dropping more than 50% in value.
For the more established post-war artists, such as Andy Warhol, the downturn was short-lived, however. In November 2009, one of Warhol’s serial compositions, 200 One Dollar Bills, 1962, achieved $39m (excluding buyer’s premium) against a pre-sale estimate of $8m to $12m, and the following 12 months proved to be one of the best years in the Warhol market’s history. The success of the Yves Saint Laurent sale in February 2009 also showed that high-end works with exceptional provenance were still in great demand despite the financial turmoil.
Since 2008, the post-war and contemporary art auction market has narrowed, focusing on a smaller number of established, blue-chip artists such as Warhol, Roy Lichtenstein, Francis Bacon, Cy Twombly, Jean-Michel Basquiat and Willem de Kooning, who sometimes seem to dominate the salerooms. Their market share of the evening sales turnover has increased from 46% in May 2008 to 63% in May 2011. The number of individual artists in the evening sales has been reduced from an average of 53 in 2008 to 41 in 2010 and 2011.
There is also another factor, which is different this time around, and that is the rapid and potential growth of the Eastern markets, with all hopes pinned on China as it increases its global art market turnover.
Whether or not the dramatic rise of this market over the past three years will make up for reduced sales elsewhere remains to be seen. But the increasing focus of western dealers, galleries and auction houses on courting and cultivating the growing number of Chinese art buyers suggests this is the expectation.
Although we are not in the same art market “bubble” of 2008, as we saw then, the more fashionable, cutting-edge contemporary art market could still be vulnerable to another economic downturn, due to lack of market consensus and art historical validation. Even the top end of the art market might not be quite as safe as investors would like to think if the economic crisis escalates further.
As research from the last crisis shows, when investor confidence evaporates, all assets start to correlate, something many art market insiders like to forget. There is also a human aspect to this: as much as investors would like to diversify away from paper currencies, sovereign debt and bank stocks at the moment, it is questionable whether investing in luxury assets such as art would send the right signal in times of increasing unemployment, mass riots and economic austerity.
The writer is the founder and managing director of ArtTactic
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