The Science of Emerging Art Markets

I’ve just watched eight grand become 16 in less than a minute, with no risk involved and no crime. The tool is a Frank Stella print changing hands in a boutique gallery on Cork Street, home of London’s art dealing elite. The lucky beneficiary is the son of a South East Asian industrialist, here in London on a spending spree.

“I promise you,” the dealer explains, “I could sell this at auction tomorrow for twice the price but I’m giving it to you because I want this to be the start of a long relationship.”

And he means it. Like any good dealer, he knows how to hook his clients. The Stella is a sideline: the son is really here with his father’s millions, hunting bigger game.

“What do you think?” he asks me, gesturing towards the abstract print.

“It’s beautiful,” I say.

I’m here because I want to know what the catch is; what makes art so valuable and why everyone isn’t in on the game? Contemporary art rises 20% year on year. Over 12 months in 1999 an Andreas Gursky photograph rose in value 3000%; the works of Gerhardt Richter quadrupled in value in four years. Websites track contemporary art prices with all the cool data-provision of a spread-betting site: ArtTactic.com offers those who pay its considerable subscription fee ‘Individual Artist Confidence Graphs’, a ‘Risk & Speculation Barometer’ and ‘rundowns of the most undervalued artists of the moment’. Art Investor magazine proudly declares that art ‘can indeed be a genuine alternative to capital and real estate’. And like real estate, if you want to get ahead of the curve these days you need to set your sights abroad.

I’m in a cafe opposite Christie’s, Old Brompton Rd, when a woman gets her bag snatched. A financial trader sees it happen. He gets talking to the husband while she phones the police and when it turns out we’re all attending the modern art auction across the road, conversation turns to prices.

“They say the art market’s due a correction, like all the others,” the trader says. “But it won’t happen. You know why? India, Russia and China. They’re pouring so much money in. They buy at any price. They don’t care. It’s a hyper-market and they’re going crazy for it.”

I cross the road to the auction house. The atmosphere in the auction room itself is a cross between the Saatchi Gallery and the shopping channel; the auctioneer brazenly stirs the crowd’s plump wallets, while there is a muted sense that most of the action is going on far away. An in-house crew work telephones along the side of the room, conversing in Italian, French and Russian. Two staff members glued to PCs call out internet bids as they come in. As one particular bid ascends into the tens of thousands, a phone dealer panics, realising he’s competing with his own pre-auction offer.

“Am I bidding against myself?” he asks, flapping his papers and chewing his hands-free microphone.

The crowd is motley. There are some glances at my trainers, but no one, these days, dares second guess who has the millions. I watch a middle aged man in a dirty fleece and old Adidas raise his numbered sheet to spend 17 grand on a non-descript German print. And I realise this is part of it. As with poker and lap dancing, the thrill is the play of money itself, and an exploration of its meaning. To throw two million at an abstract canvas with three lines on suggest you are holding knowledge of some secret, almost inexpressible value. Or it is a gigantic bluff.

The Damien Hirst spot paintings that surround us reflect this attitude, unashamed at being studio-produced and designed for generating value. ‘Diacetoxyscirpenol’ (black, white and grey dots) is estimated at £7000 to £9000. ‘Tetrahydrocannabinol’ (identical, but with coloured dots) will set you back three times as much. ‘Ciclopirox Olamine’, (coloured dots, some filled in with smiley faces, and bearing the scrawled message ‘Cheer up ya miserable cunts’): £15,000 to £20,000.

A young couple consider the annotation, straight-faced, huddled secretively around the print with a Christie’s specialist.

“People always like things with the real touch of the artist,” the specialist explains. “They have become unique. They’re not going to come up again like this.”

We all stand in awe.

“If we were looking in terms of investment,” the couple ask, “Would the Mark Quinns appreciate more than the Hirsts?”

It is hard, in all of this, not to sense a final vengeance of the unimaginative against the artist ­– of business against the arts generally. When did modern art become such a commodity? Dealers at the start of the 20^th century could buy Picassos for 30 francs – not because he was unknown, but because this was the price of art. A Cold War United States had its own political (and tax) motivations for grandly supporting its home-grown abstract expressionists, but the boom that sent modern art prices stratospheric occurred in the late 1980s and centred on Impressionism. I’d always wondered why Japanese businessmen suddenly found an insatiable appetite for Monet; journalist Ben Lewis suggests one attraction. He describes how taxes on premium property sales meant canny buyers would often pay under the odds and throw in a couple of poppy fields to make up the difference. Likewise, one of the biggest signs of faith in the enduring monetary value of art is the continuing popularity of stolen works as collateral in underworld deals.

The beauty of art as an investment, it seems, is precisely that it is meaningless, and so cannot be affected by, say, the price of steel, or the state of American mortgages. It is pure value, a free floating price tag, immune to circumstance. Don Thompson, in his book The $12 Million Stuffed Shark, uses the economic term ‘Ratchet Effect’: ‘A ratchet turns in only one direction, and then locks in place. A price ratchet means that prices are sticky in a downward direction but free to move up.’

Jesse Jacobson, of London’s Bernard Jacobson Gallery, is all too aware of the market’s perverse durability: “Right now, most markets are dropping, but what happens is people sell their shares and use the cash to buy art.”

The 90s boom for contemporary art followed the dotcom burst. Contemporary art, with its potential for infinite expansion, becomes popular because more people need to buy into this phenomenon, yet can’t afford any of the genuinely finite group of Old Masters available. So dealers find new markets for them. It’s like printing money without the risk of inflation.

On the day I visit Christies, Ed Dolman appears in the Sunday Times agreeing with the trader’s optimism. The present situation is defined by ‘30 or 40 individuals who have come into the market from Russia, Asia and the Middle East.’ He predicts that in the future, 30-35% of the market will be Asian. ‘We have huge buyers of contemporary art in Asia. Enormous buyers of contemporary art in Russia… The great works of this century and the 20th century will be more and more expensive. That’s an unstoppable trend. When we look at the accumulation of capital all over the world, and the decreasing number of great works of art, there’s your equation!’

When Rothko’s ‘White Center’ established a world record for post-war art last year, going for $72.8 million at NY Sotheby’s, witnesses described the bidder as a ‘bearded Russian collector’. The most expensive painting on display the day I visit Christie’s is by the Russian abstract master, Serge Poliakoff (£200,000 for a small, untitled green and cream canvas). When I ask Darren Leak, their specialist on hand, why it is going for that sum he looks worried and asks if I think it’s undervalued. Eventually he suggests that the unusual colour scheme places it firmly in the six figure bracket. Most Poliakoffs are maroon.

Russian money is no longer a surprise but the effect of other areas of new wealth, particularly India’s exploding entrepreneurial class, is still being gauged. As in Russia, the first buyers to boost the market were non-resident, mainly Indian ex-pats in New York, and they bought mostly older works. But if the first wave sees a savvy diaspora buying back their heritage, the next sees an assertion of modernity.

“The people buying contemporary art now are increasingly rich Indian business people,” says Frances Fogel, an in-house art historian at AXA Art Insurance. “And they are buying into a Western mindset and values.”

Last year one Mumbai auction house sold an abstract work by VS Gaitonde for nine million rupees ($215,000) to a collector in Dubai. It looks, somewhat disappointingly, rather like a late Rothko. In 2005, Christie’s auctioned Tyeb Mehta’s ‘Mahisasura’ for nearly $1.6 million, the first time an Indian contemporary painting crossed the million barrier.

Penny Bingham has experience running an auction house in Mumbai. She explains the development, and contrasts it with another emerging market: “The real growth and switch from traditional art to modern was not until 2002. This coincided with the Indian economy expanding. The market in India was underpinned by the new wealthy entrepreneurs and Non Resident Indians (NRI’s) based in New York & Dubai. This group of people, whose wealth was based on new technology and films, were drawn to new art rather than traditional art and its close association with the colonial era. In China this has not been the case. The contemporary art market is essentially driven by European money, as all the galleries are owned by Europeans and most of the clients live abroad. The Chinese market is therefore more volatile and regarded from an investment stand point as less mature.”

According to a ‘Confidence Survey’ by ArtTactic.com, there is ‘a significant level of optimism in the current Indian contemporary art market, and also in the short term outlook’. You can even put your rupees into one of several investment funds devoted solely to Indian art, such Copal Art and Ossians, ‘a natural outcome of any market maturing’ according to Arun Vadehra of Delhi gallery, Vadehra Art.

And the future? Bingham predicts “the rapid rise in the more established Indian artists will probably plateau, but there is still some growth in the new artists of today.”

As the excited trader in Café Nero suggests, this situation incorporates two intoxicating dreams in one: the endless emergence of the new economies and the endless rising value of art. The Sunday Times notes that ‘a worldwide, decade-long fever of museum-building has been vacuuming up work in traditional collecting fields.’ Now less traditional collecting fields are appearing. Where there is demand, dealers will find a supply.

‘Museum quality’ is the phrase that adds noughts to the value of any piece. Bingham tells me that the Modern Art Museum in Delhi has in recent years been augmented with a couple of private collections in Mumbai and Delhi, “thus giving the market more international credibility.” Before museums get in on the action, a big-name collector – or a dealer established enough to place an artist’s work with big collectors – provides an equivalent stamp of financial worth. Supply and demand is all. In terms of the value of their oeuvre, one Christie’s employee tells me the best thing an artist can do is die. While you’re living, however, it is the role of the dealer to act as the tap controlling the flow. The independent galleries ensure there’s always slightly fewer works available than there are punters willing to buy in. For this reason artists and dealers dislike auctions. Auctions are like floating a company: price is no longer tied to the work itself, but to the supposed value of the artist’s stock in the future.

“The hype they bring is bad for art,” says Jesse Jacobson.

Examples abound of artists bought for millions by one dealer, then dumped on the market in one go and massively devalued. Saatchi himself has been criticised for buying up works by a particular artist, storing them as the price rises and then flooding the market at auction.

So what’s the next market to explode? Where will we need to expand so that everyone can have their slice of the art cake? Poland? Turkey? Romania? Ask those in the industry and the uniform response is: if I knew that I wouldn’t be sitting here. Ask the right collector and it would be: wherever I choose.

Only Jesse Jacobson responds with confidence. When I ask after the next big thing, he and his gallery assistant bring out a vast, semi-abstract diptych by an artist called Aaron. Aaron is a computer. He was created by the British artist Harold Cohen when Cohen felt his own career had reached a natural conclusion. Aaron has been teaching itself to paint for the last three decades.

Jacobson arranges the two tall panels against the gallery wall. It is bright and explosive but gracefully proportioned. It looks like a photograph of flowers blown up to room height and put through intense, multicoloured filters.

‘What do you think?’ Jacobson asks.

‘It’s strangely soulful,’ I say.

Current asking price is £12,500.

Art by Aaron

Posted by Oliver Harris in Other | August 26, 2008 10:13PM |