— This is the script of CNBC's news report for China's CCTV on December 9, 2019, Monday.
Art investment is not new to some people, buying Monet's painting with great cost may not just arty-farty, in fact, it probably brings considerable returns to the buyer. Artwork market is booming with more and more people start to pay attention to art investment. The size of the global art market is $64.7b in 2018, which is the second peak level in history, according to UBS. In terms of long-term investment returns, artwork's performance can even compete with that of equity. According to a new report from Citi based on data from Masrerworks.io. which tracks the auction results of Sotheby's, Christie's and Phillips, the art market as a whole as averaged 5.3% return.
Among that, contemporary art has been the best, returning an average of 7.5%, impressionist art averaged 5.0%. Compared with other major investment products, the return on art most closely matches that of fixed income. In the same time frame, investment grade bond from developed countries returned 6.5%, while global high yield bonds returned 8.1%, Citi said. As a reference, developed-market equities and private equity returns 9.8% and 13.9%, respectively.
When it comes to art investment, you may think of some auctions that break the ceiling of auction price. For example, in May this year
Monet's haystacks went for $110m and Picasso's Salvator Mundi sold for a record $450m 2 years ago.
These numbers are daunting to common investors, but in fact, artworks under $50000(around 352000RMB) offer the best performing price point from both a return and a risk per unit of return basis.
Additionally, tracked data shows that the art typically does better when interest rates are low. In general, the higher returns are typically given to more liquid artists, holding art for longer typically lowers the risk of future returns. When it comes to risk, we know that in the art investment market, a lack of transparency around sales has been a longstanding hurdle for the art market, but Citi said that could be about to change thanks to technological advancements. Digital technologies such as blockchain could help automate vital processes, including establishing authenticity and performing valuations, as well as enabling share-based investment in individual works and collections.
More transparent pricing, more readily available data on sales, greater market liquidity, and lower transaction costs could result. If realized, such efficiencies would make the art market more attractive for collectors and investors alike. Before this day comes, we should note that art investment still goes with high risk, it annualized returns also have high volatility.
The volatility surrounding annual returns, as measured by the standard deviation from the average, was 14.9% across all art categories and 25.8% for contemporary art. To put that in context, investment grade fixed income from developed markets has a volatility rate of 5.2%, Citi pointed out in the report.
All in all, artwork is priceless, but investors should pay attention to low market liquidity and high risk in art market. As for the follow-ups in art investment, we will keep an eye on that.