9/13/2011

Global Art Market

The Art Newspaper has a short but interesting overview of the current concerns within the world art market. Given the large amount of uncertainty and lack of stability with European banking and debt issues and the US credit standing downgrade there is much speculation on if the art market will sustain its recent growth or see a decline this fall season.

The article points out two basic financial approaches to the art market, one where art is considered a luxury product and would follow the trends set in that sector, or as a store of value such as gold where funds will be directed to as an alternative asset as other financial markets decline.

The final section of the article mentions developing countries such as China and Brazil.  If China and other BRIC nations can take up the slack from American and European markets, averting a severe decline.  If you recall, I recently posted on Sotheby's expanding investment in China (click HERE to read), so the large international houses are betting large on China.

The Artnewspaper reports.

The wealthy, especially in cities such as London and New York which rely heavily on their ­financial centres, all now have less to spend. The hedge fund SAC Capital, run by the art collector Steve Cohen, was down 4% for the first week of August alone.

In the luxury goods sector in Europe, share prices are down ­between 15% and 30%. “We see significant potential downside if the crisis mimics 2008,” said Julian Easthope, a research analyst at Barclays Capital in London. He looks closely at stocks, including France’s PPR, founded by Christie’s owner Fran├žois Pinault.

Sotheby’s stock has certainly felt the pinch: since 7 July, it has lost 37% of its value (falling from $47.8 to under $30, as we went to press), wiping over $1.2 billion off the value of the company. This reduces the money available to it at a time when competition with Christie’s is already eating into its profits. In the fight for the best works, both auction houses need to offer increasingly attractive terms to consignors, which is reducing Sotheby’s profit ­margins (see p59).

Safe as houses?
Others say that some of the lessons learned since the 2008 ­financial crisis are reasons to be more confident in the art market. “There was much more of a shock when the banks started collapsing. Then the [art] market reconfigured as the rain washed out some of the speculators and short-term engagers,” said art advisor Allan Schwartzman. “What has been validated in the last few rounds of uncertainty is that art is a genuine form of capital,” he added, comparing it to traditionally safer investments such as gold. This, he said, is reinforced by the near-zero interest rates in the US.

In a reaction to the financial crises, gold has hit a new record price, nearing $1,830 an ounce as we went to press, with silver and other precious metals up in concert. The Swiss franc, seen as one of the most reliable currencies, reached an exchange rate high of $1.28 and nearly equalled the ­euro for the first time.

All agree, however, that one key factor underpinning the ­potential health of the art market is whether or not the emerging economies, such as China, could pick up any slack should the more traditional markets falter.
To read the full Artnewspaper article, click HERE.

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