By Juan José Mesa
The financial market is on the ropes. The real estate market has collapsed, all the international newspapers are reporting that the world's economies are in turmoil, and panic is gripping the stock exchanges. This situation has a direct impact on currency depreciation, financial crises, and institutional and mortgage bankruptcies. Frankly, people are already talking about a recession. However, the art business, despite everything, is holding up.
More Information
In times of crisis and speculation, art plays a lifeline for those who foresaw that works of art were a safe investment. Art guarantees a secure return, risk-free in most cases. Art is, in short, a safe haven in times of turbulence and crisis, immune to crashes, debacles, or other economic distortions. Market crashes and times of war, for example, are just two types of events that tend to drive the value of art upward.
According to the prestigious website Art Price, the average growth of the art market between 2005 and 2008 was 49% compared to, for example, the 46.9% recorded by the CAC40 or the 24.5% increase in the Dow Jones during the same period.
For Elisa Hernando, director of the Spanish consultancy Arte Global, the profitability of art is assured in the future; it will continue to be a safe bet, although prices will be corrected—especially for works by overvalued artists—and this will allow speculators, who have artificially inflated the value of some works, to leave the market. (1)
Jianping Mei and Michael Moses, professors at New York University (NYU), compiled a price index showing how post-war and contemporary art has outperformed the most important US stock market index, the S&P 500, over the past ten years. In a published study, Mei and Moses examined the effects of four recent wars and 27 recessions in the United States on the prices of paintings. They concluded that: "During the very long armed conflicts of the last century, art showed a profitability index that increased in a short time, and that when recessions and wars brought down Wall Street, works of art served as the best investment refuge. And in the financial market, the value of works of art multiplied even faster." (2)
Some historical data show the following results:
• During World War I, the US and British stock markets fell by an average of 25%, while art during the same period had increased in value by 125%.
• During World War II, the London and New York stock markets collapsed. By 1946, they had recovered by 107% and 100%, respectively. By then, art had reached 130% of its pre-war value in 1937.
• The S&P 500 rose 67% during the Korean War (1949 to 1954). During that same period, the Mei/Moses Art Index was up 108%.
• During the Vietnam War, the S&P 500 declined 27% between 1966 and 1975, while art rose 256%. (3)
Those familiar with the business say that investing in works by well-established artists can generate up to 30% annual returns.
There are three forces driving up prices, according to Karl Schweizer, head of art banking at UBS, a Swiss bank. The rich are getting richer, they are more comfortable with alternative assets like art, and there is a shortage of supply—few contemporary “classical” artists (those working from 1870 to 1950) and post-war artists have produced work of lasting value. Some investors are even venturing into riskier areas of the market, that of so-called “wet art,” or the freshly taken-down-from-the-easel. The market is saturated. But the potential for profit from speculation is irresistible to aspiring connoisseurs. (4)
In 2007, art moved $67 billion. The painting market alone is estimated to represent $30 billion. Russian, Indian, and Chinese magnates are vying for works of art by artists of their own nationalities.
(1) Art, a safe haven in times of crisis. ABC. 11/16/2008
(2) Freddy Suárez Gutiérrez, Art Market. Leedor.com
(3) Jianping Mei and Michael Moses, 2002. "Art as an Investment and the Underperformance of Masterpieces," American Economic Review, American Economic Association, vol. 92(5), pp. 1656-1668, December.
(4) The Economist print edition (January 11, 2007)
