China is famed for its intricate traditional artwork, but art is taking on a new meaning in the country for investors – it is the latest booming asset class. The country became the world’s largest market for art auctions last year, with sales totaling 6.33 billion US Dollars. A combination of sluggish stocks,property and precious metal markets meant some of the best investment channels in China lost their allure, drawing investors to a new avenue for their capital.
Art collection as an alternative asset has thrived recently. Using art mortgages for financing is also on the rise. In the last 15 years, plenty of first-tier Chinese entrepreneurs have joined the art collection industry.
Artwork is said to be the only asset allocation with long-term, stable and continuous appreciation. The wealthy now consider art as an important option of asset allocation. This market is flooded with short-term speculative capital for the purpose of financial revenue.
However, prospective buyers should be warned that only repeatedly traded artworks can reap major windfalls. The Veblen effect, which dictates that demand is proportional to the price of goods, is thought to provoke “show-off consumption” and drive up auction sales in the name of bragging rights.
Differing from financial assets, the scarcity, aesthetic attributes and irreplaceability of artworks make the price formation mechanism irregular. However, investing in an art fund, like Arthena, can greatly improve an investor’s potential returns in an often tumultuous art market.