Kazakhstan Contemporary Art Gallery

Art Investment: Always a Price

DK News newspaper 29.01.2016 Text: Dina Duspulova, art expert

< Paul Sezann. – “Card Players”, 250 million dollars

When the markets fall, all withdraw investment in more reliable segments. The instability of the global financial markets pushes investors to seek alternative ways to invest. From this point of view, the masterpieces of fine art is a perfect object for investment. The main feature of the art market is its weak dependence on the stock market and Kazakhstan now is a high time to adopt experience what works everywhere abroad already.

 Domestic demand for the art of Kazakhstan depends on domestic business elite, on how well they would be advanced in the field of art investment. To save money one should be well-versed in the art. However, due to the lack of information, art investment is a little popular with us. To create the steady long-term market, it is necessary to encourage and "bring up" collectors, not just investors because the market has a prospect then. To create a true collectors is an important task. If a work of art is purchased just as an investment, it is often only a short-term benefit.

It is about building up our domestic art industry, although the notion of Kazakhstan’s art market is still blurry today. The growing interest in art would increase art value and improve the investment climate in Kazakhstan. It would help to balance the drop in world oil prices and get rid of raw materials dependence faster.

 Western trend

The western investor it is much easier to do. The overseas art investment’s market emerged in the mid-sixties of the last century, thanks to such infrastructure elements as expert institutes, insurance, consulting and analytical companies, auction houses. In a London there around forty auction houses . On hand at the western investor’s there special pricing indicators and numerous yield art indices. For example, the world-wide recognized New York May-Mozes, Milan Gabrius art index, Lyon art price, the British-Swiss Zurich Art & Antix index and others.

 Even in stagnation and recession years, the price of artworks keeps growing. During the stock-market crash in October, 1987, many investors withdrew their money from the stock market and some of the freed up funds they invested in works of art. Since the stock market crisis in 2000, the rise in art prices is ahead of the price increase in financial markets. The global financial crisis 2008 affected for a while the market of cultural values: since the second half of 2008 there was a decrease in turnover of the art market. But since January, 2009 the business activity renewed. At the leading segments of biddings of 75% of auction lots sold above the upper estimates. The Skate's Agency index of a thousand the most expensive masterpieces sold at the international auctions, shows a steady increase in their value. Capitalization of such level works was not just did not fall, but even increased by 12,6%. In 2011, the auction market was 11, 25 billion dollars, and according the artprice.com the profitability of the art market was 15%, that is, it was more profitable than stock, with capitalization of which in the same year fell by 12,1%.

 The art market also is poorly sensitive to political events. During wars and other emergencies, the cost of artworks virtually unchanged. The authoritative index  Mei/Mozes, based on a study of fifty years (1953 - 2003), showed the average annual return on investment in art at the level of 12,06% (Mei/Mozes Fine Art Index - the art market index, developed by Michael Mozes and Jampin Mei, professors of the Leonardo Stern’s Business school at the New York University). For comparison: over the same period, S&P500 stock index showed an average annual return of 11,7%. Mei and Mozes compared the dynamics of prices at the paintings by French neo-impressionist Paul Cezanne to the dynamics of prices of the German stocks and bonds, since 1874. As a result of two world wars, shareholders incurred heavy losses or even lose all the capital. The prices by Cezanne's works grew in the price both in military, and crisis time. There are also fresher example. In September, 2008, at the height of the global financial crisis, the paintings by contemporary artist Demien Hurst were sold at auction for a total amount of 200 million dollars, that exceeded twice the maximum estimate of the bidding, for what they called "the auction of the century". 

Damien Herst, Lullaby spring”, 19 million dollars

From 2003 to the early 2008, the results of auction sales showed, that the prices of works by artists from "the first names" of international cohort grew by more than 400%.

 Asian trend

 The art world follows the shift of forces from the West to the East. In search of new opportunities and development forms it is changing rapidly. The demand for art grows  worldwide. From 2002 to 2006, the share of the art market countries, outside the U.S. and Europe, increased from 3,8 to 7,7 %. A sharp surge in activity occurred in the Asian art markets, in China and India.

 During this period the most considerable changes happened in the art market of China. The rapid growth of sales, a huge artistic potential, the fast formation of the art market have maken China one of the most important centers of contemporary art. In 2006, China’s share of the global market amounted to 5% in value terms, and auction sales of 1,1 billion euros. From 2003 to 2006, the turnover on the market of contemporary Chinese art increased 100 times. The greatest changes happened from 2005-2006, when auction sales at cost grew by 983%, and the number of lots to 477%. The turning point of 2006 is the result of sharply increased demand from the Chinese and western buyers, who were interested in absolutely all directions and price ranges. After all, twenty years ago there were neither auction houses, nor demand for works of art and antiques in China. In 2010, in terms of open sales China overtook the market of the US, the leader of the last few decades, and by the end of 2011, China finally gained the lead, having taken, according to the artprice.com, 40% of the market. On the second place there were the USA with 25% of the global auction market (before the crisis the share of the States was 46%), and the UK had 20 % left.

Following the results of a year, ten of fifteen dearest artists in the world are the Chinese. In 2012, the most demanded was the artist Zhang Daqian: the total sales of his works amounted to 505 million dollars. Another Chinese master Qi Baishi brought 445,1 million dollars, moving Pablo Picasso, the leader "on monetary collecting" of the last years, on the third place. Works by Picasso in 2011 were sold for 312 million dollars.

 The same is happening to another rapidly developing country, India. If a large number of collectors in China is due to the internal state policy, the demand for the Indian art was cultivated from outside by Christie's and Sotheby’s. The Indian art market began with export development. The international art market in India counts its history since 2005. Then, to expand the activity due to development of the Indian art market, Christie's and Sotheby's started investing money in the Indian art. Initially, the buyers were from around the world, and the task was complicated by numerous legal obstacles. But even at a formation stage, this market showed an incredible growth of the art export: from 2000 to 2006 at 186 %, that is, from 2,6 million to 478 million euros. Following the foreigners, the Indian buyers also began to invest in domestic art. Today, the key sales are due to purchasing power of the Indian clients. Collectors in India have become more open to a variety of forms and techniques of contemporary art. Their enthusiasm for art collecting is provided by the development of the art market and economic growth.

 Kazakhstani realities

 To enter the global art market in the wake of its expansion for Kazakhstan is the imperative of time. However, nobody undertakes to assess the turnover of Kazakhstani art market today. The current state of the Kazakh art market very much reminds conditions, with which the Indian and Chinese models started fifteen years ago: the same lack of a national collecting tradition, the same global isolation of domestic art and the lack of government help. Neither the "national" interest, nor serious level of private collecting.  There is an “art on gifts” prevails in the country, that is, an owner got works of art in gift or even for pittance (100-200 dollars). Therefore, the Kazakh collectors have no clear idea of the real cost of own collections. Transactions are made in majority directly from an art studio, bypassing galleries and auction, pricing spontaneous. It deprives the artwork a liquidity: they are easy to buy, but cannot be sold. The investment value of an artwork, not past of an expert assessment, is zero. Where from the artist can know how much is his art? It is the work of an expert appraiser. Lack of such level experts at us slows down the entry to the art market.

 Today, the price ceiling even on top Kazakhstani masters does not exceed 10 000 dollars. According to the world price system, it is a segment of inexpensive art (up to 50 000 dollars), designed for middle class buyers. In the global auction market its share is around 80% of all transactions. Between this lower price range and the premium segment (from a million dollars), extends the average range (up to a million dollars). Though in Kazakhstan middle class is not enough, the rich layer of buyers has been already created. The model of the art market in China and India can serve to them as an option to diversify the investment portfolio. However, we sell premium domestic art at the price of the lowest threshold of cheap art, following the habit to estimate art as a residual left from the Soviet era. But if we ourselves appreciate our art so low, the world also would not estimate it either the dollar higher! In terms of investment what keeps us from following the sample of the Chinese to buy and sell masterpieces of the Kazakh artists at exorbitant prices? 

 There are worthy artists and the private galleries in Kazakhstan, but there is no constantly operating auction house. And it is very important, because auction art sale is the most objective. What is the real cost of an artwork, set out for bids, could be understood at auction, where the seller and the buyer are guided by a ratio of supply and demand. You can sell everything, the issue just in price.

The world experience shows, that liquidity of the art market depends on:

- infrastructure development,

- availability of information to interested parties, and

- matching the offer price to the demand price