Art: As good as gold?

Gerard Sekoto’s Self-Portrait sold 
for £117?600 (R2.26m at the current exchange rate) at an auction at Bonhams in London in May 2006
Gerard Sekoto’s Self-Portrait sold for £117?600 (R2.26m at the current exchange rate) at an auction at Bonhams in London in May 2006

‘When we look at the subindices of the media, we see the now decade-old declining dominance of oil,” ­George Herman, a senior ­investment strategist at ­Citadel Investment Services, tells City Press.

He’s referring to an oil price outside of the typical business lexicon.

“Oil paintings dominate art turnover by a long shot, but it is indeed declining.” Herman continues, as though we were discussing property or gold stocks: “On the other hand, however, sculpture has improved materially. For the second year in a row, sculptures have been the best-performing media – up by more than a third from 4.6% of sales in 2014.”

We’re discussing the Citadel Art Price Index (Capi), a controversial South African art-market indicator that’s now in its fourth year.

This year, the report has collected the sale results of more than 5 000 auction lots sold at 19 local and ­international auction houses, revealing some fascinating ­insights for those looking to make sense of the ­notoriously inaccessible art market.

The report has been criticised in the past for its ­attempt to place a value on the intangible aesthetic ­values of art and its exclusion of contemporary gallery sales (most galleries refuse to release their sale figures for the year). But as Herman puts it: “All the report does is hold a mirror up to the art world, and I think it’s this that they don’t like more than anything.”

According to the report, more than R296 million changed hands for South African art at last year’s auctions – 11.5% lower than 2013 despite 6.9% more stock. The average price per piece is now R53 800 – 22% lower than the 2013 average, yet Herman remains positive about market growth.

“During 2014, the commodity prices experienced a major bifurcation as energy prices, along with agricultural prices, declined dramatically, but precious metals held on to their prices. South African art started showing its true colours as a safe-haven commodity and performed more in line with its precious metal counterparts during 2014.”

Beneath the headline Art: as good as gold, the report explains that European economic deflation (and enduring stagnation), combined with a strong US dollar and an oil price that declined by 50% during 2014, has meant that all commodities, including art, have lost out. Capi cites that the ramifications of Greece’s “disorderly exit” from the Eurozone, as the report puts it, will lead to a dramatic rise in the price of all safe-haven assets.

“It won’t be surprising if art makes up the ground it lost against gold during the next few years. Art will separate itself from consumption commodities and stand out as a true store of long-term dollar value.”

A few weeks ago, the art market hit a new milestone – R33 billion in art sales at Sotheby’s in New York. One painting by Picasso, called Les emmes d’Alger (Version O), went for R2.1 billion – the highest price paid for a work of art at any auction in history.

But there is also a big debate about whether these booming art auctions are a warning to investors of a market about to plateau or crash. It’s being called the Picasso Indicator, and has got global economic analysts asking whether we have reached the top of this economic cycle.

Jason Goepfert, CEO of Sundial Capital Research, has a note analysing the relationship between record art sales and the stock market.

He has calculated the one-year sum of the top 62 largest art sales (adjusted for inflation so that everything is reflected in the dollar price in 1986).

In Goepfert’s examples, stocks tend to struggle in the months following big records in art sales, but other analysts have argued that these reports aren’t anything to worry about because the art market is dominated by the global elite – a tiny portion of the global economy.

Our local indicator would be Irma Stern, whose Still Life with a Vase of Pomegranates was sold for R1 023 120 at a prominent Strauss andamp; Co auction in Johannesburg last week.

The maximum price paid during 2014 for a painting was also for an Irma Stern – Zanzibar Woman – which realised just more than R16 million at auction. The Capi indicates that this is slightly up from both 2012 and 2013’s maximum prices, but nowhere near the R44.6 million her Bahora Girl reached in 2010 – the most expensive South African work of art so far sold at auction. Could Stern be the key to working out our art market?

“The higher volumes but lower average prices paid during 2014 highlight the positive strides being made by contemporary art, and the lower number of spectacular Stern trades,” Herman says.

“Oil sales per volume are down to 49% of all lots sold, down from its peak of 59% in 2001. The decline of oils against all other media is a decade-old theme. It is merely the meteoric rise of the Stern prices during the late 2000s that kept the proportion by value numbers relatively high. As those prices are fading, expect this statistic to decline further.”

For investors looking to get into the market, contemporary art may be a scary place to start, but without a few old masters in your pocket, it might be your best bet.

“Buyers of South African art take a long time to trust the work of an artist, hence the premium that is afforded to the most popular artists,” says the report.

“This effect became especially apparent following the market turmoil of 2008. It’s thus obvious that buyers consider the works of the better-known artists as ‘safer’, hence this premium.

“The right art pieces have low volatility and have potential to grow substantially in value and, with proper guidance, investing in these pieces can yield high rewards. It’s for this reason that advice from knowledgeable professionals who understand its liquidity and the market expectations should be sought when collectors wish to expand their art collections, or when one wishes to start a new art collection.”

But at the end of the day, you have to live with the work on your wall, so buy something you love and hold on to it. You never know, you might have the next Stern above your fireplace.

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