A Tale of Two Art Markets – artmarketblog.com

A Tale of Two Art Markets – artmarketblog.com

A changed art market doesn’t necessarily mean an art market that is any worse off but because of the particular changes that the art market has undergone over the past 6-9 months things appear worse than they really are. Much worse. Yes, I am of the opinion that the art market has not gone to the dogs and continues to progress with strength and vigour albeit on a different trajectory to that of twelve months ago. I am, however, also a realist and am well aware that there are sectors of the art market that have experienced a reduction in demand and value. The two hardest hit areas of the art market are the market for contemporary art and the auction industry which also happen to be the two most visible, publicised and hyped areas of the market.

With so much emphasis and importance being placed on the contemporary art market and the auction industry if either appears to go even slightly pear shaped there will be an inevitably and disproportionately high level of concern and distress. The portion of the entire art market most people use to make judgments regarding the health of the entire art market tells only part of the story. A part of the story that is not necessarily representative of the whole story. It is therefore important to realise that the portion of the art market that most people don’t see and aren’t exposed to is huge but because it is not visible it tends to be forgotten or ignored.

When the art market reached the ridiculous highs of 2007/2008 many people’s perception of what a healthy art market is were somewhat skewed. For so long the art market was blessed with good fortune, so long in fact that many of those involved in the art market appear to have forgotten what the art market is all about. Know what I mean? I sure hope so. The art market that we experienced at the height of the boom was not the real art market. It was an artificial, dishonest and deceitful market that was progressing like an out of control train running at 200% which had to eventually return to it’s normal pace. For so long that train had a straight piece of track that allowed it to continue out of control but thankfully it eventually came to a junction and had to slow down to a normal pace.

It is interesting to note that one of the characteristics of the current art market is an increase in the number of private sales being conducted and a decrease in the popularity of selling/buying at auction. What many people are interpreting as a decline in the number of works being bought and sold may in fact just be a change in the preferred method of sale/purchase.  It is factors like this that one must take into consideration when making an assessment of the health of the art market if an accurate assessment is going to be made.  The auction industry and the contemporary art market can no longer be relied upon as being a true representation of the health of the entire art market.

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.

The Art Market is Not Immune – artmarketblog.com

The Art Market is Not Immune – artmarketblog.com

There are lots of things that bother me about the way that art investment and the art market are portrayed. One of the things that bothers me quite a bit is the frequency of which the art market is referred to as being immune to economic or financial turmoil. To say that the art market is immune to the economy or financial turmoil is not entirely untrue depending on how you interpret the statement or the situation in which the statement is made, however, it is definitely not the whole truth and is often a misleading statement. The art market is a very unique market that reacts to certain events and factors in a way that does not correlate with the way most other investment markets would react. Because of this, the potential for people to incorrectly identify or mistake certain market movements, events or characteristics as evidence that the art market is totally immune to these events is quite high. This is not to say that there are not situations where the art market does display immunity but it is not usually to anywhere near the extent that is many people believe. There also seems to be many people who presume that because one particular artist, artwork, movement or regional art market appears immune to an economic downturn or financial crisis that the whole art market is immune.

As much as I want to advocate art as an investment and the art market I don’t see how misrepresenting the art market and art investment can be a positive move which is why I want to set the record straight. It is virtually impossible for the whole art market to be immune to a financial crisis such as the one we are experiencing at the moment because the crisis is having an effect on so many people and so many of the other investment markets that it is going to have to filter through to the art market at some point. The art market is often referred to as an isolated market which basically means that it has limited connections with other investment markets or, in technical jargon, it has a low correlation with other assets. As a result, the art market is said to not feel the effects of negative movements in other markets to the same extent as markets that have a much stronger connection with the market experiencing the negative movements. Once again, it is virtually impossible for the global art market to not be effected by the fluctuations experienced by other markets as there is always going to be some sort of a connection. The art market does, however, often have a less severe reaction to the movements of other markets and can even have a totally opposite reaction or not react at all. Therefore, it is reasonable to say that the art market has a low correlation with other assets because a low correlation does not mean that that there is no connection between the art market and other markets just that the relationship is not as strong as relationships between other asset classes.

Although the global art market is often incorrectly referred to as being immune to economic and financial turmoil there are certain circumstances under which the art market can exhibit characteristics that would suggest that it is immune to negative economic and financial market movements. There are also situations where the art market could genuinely be referred to as being immune. Because the art market is relatively illiquid compared to other asset classes there is usually not enough time for the art market to react to short term fluctuations in markets such as the highly liquid stock market where trading can take a matter of seconds. The art market can also take much longer to react to more severe and wide ranging financial and economic downturns such as the one we are experiencing at the moment which can trick people into thinking that it won’t react at all.

It is also important to recognise the fact that the art markets of different countries often have a low correlation with each other which means that even though the art market of one country may have been affected by a certain economic or financial event that the art market of another country may exhibit a very minor reaction or may not react at all. For example, at the moment the art market in Dubai and neighbouring areas appears to be have been affected very little by the current financial crisis where plenty of money appears to still be available for the purchase of art. It is also possible for particular movements or types of art to react differently than other movements or types of art. Contemporary art has benefited the most from the recent art market boom and as such has also been the most affected by the current financial crisis. Because speculation is far less common when it comes to the market for old master paintings and the value of old master paintings is much more verifiable and justifiable the market tends to be far more stable and less volatile. Although the market for old masters is not immune to market downturns they are often used as a hedge because they react far less to economic downturns than other sectors of the art market and other asset classes. Once again certain painters or certain artists whose work falls under the category of “old master” may exhibit characteristics that suggest that they are immune to economic downturns but a few examples cannot be used as a representation of the whole market for old master paintings.

In summary, suggesting that the global art market is immune to financial crises and economic turmoil is generally incorrect and misleading. There are certain circumstances and situations where a particular country’s art market or a certain sector of the art market could be considered to be exhibiting immunity to certain investment market related events.  Just don’t be fooled into believing that an investment in art is a total and infallible  hedge against an economic downturn.

**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of http://www.artmarketblog.com, writes the art column for the magazine Antiques and Collectibles for Pleasure and Profit and contributes to many other publications.