February 3, 2008 / 2:09 AM / 10 years ago

Nervous investors canvass Asian art for big returns

HONG KONG (Reuters) - The grinning men of “Execution” fetched $6 million at auction late last year, 187 times the price paid seven years ago by a Hong Kong banker for Chinese artist Yue Minjun’s oil painting inspired by the 1989 Tiananmen crackdown.

Now, amid global stock market turmoil, investors are scouring the region’s art for the next big windfall, hoping nouveau riche Chinese and Indian entrepreneurs will help pump up prices by stepping into a realm previously dominated by serious collectors.

“Chinese art is now viewed as another commodity to invest in,” said Anthony Lin, a Hong Kong-based art consultant who used to be the chairman of Christie’s Asia.

“There’s been between a 10-to-60-fold price increase in the past few years which is quite spectacular. India is slightly below, but it’s also amazing.”

From Indian contemporary paintings to Japanese lacquers, Ming vases and ancient gilt Buddhas, Asian art is drawing specialist funds as well as new buyers from China, India, Russia and Dubai. At the same time, demand from North America and Europe remain strong.

Chinese art website Artron (www.artron.net), which tracks 100 auction houses, said $3.3 billion worth of Chinese art was sold in 2007, a 41 percent rise on the previous year.

A set of abstract gunpowder-on-paper drawings by Chinese artist Cai Guo-Qiang sold in November for $9.5 million, becoming the most expensive Asian contemporary art at auction.

“We’re seeing a structural shift in the global art market which is enjoying greater breadth and depth than ever,” said Su-Mei Thompson, Christie’s Asia business development director.

Mei Jianping, a former New York University professor who created the Mei/Moses index tracking prices of Western art, said Chinese art was a good bet because the country’s newly rich wanted to snap up pieces as investments and status symbols.

The 40 wealthiest people in Greater China, all billionaires, saw their combined fortunes soar by $28 billion in 2006 to a combined net worth of $158 billion.

“It’ll be one of the best performing asset classes,” said Mei. “The Chinese art market has outperformed the Chinese equity market over the past 10 years.”

Shanghai’s benchmark stock index has slumped 31 percent from a record high in October, but has still nearly quadrupled in the last two years after having moved little for a decade. But no established or widely used index exists yet for Chinese art prices.

Western art, such as by old masters and impressionists, have returned more than bonds but less than U.S. stocks, Mei said.

ART OF ILLUSION?

But not all in the art business are convinced by the investment rationale for art from Asia, a region notorious for fakes, poor authentication and high transaction costs.

“I personally think Asian art, especially contemporary art is very much overheated,” said Karl Schweizer, an art expert at Swiss bank UBS. “I‘m not sure whether all of these artists will pass the test of time,” he said.

While art is seen as a refuge in times of stock market strife, Chinese art may not appeal as a safe haven.

The market risks being distorted by “dark horse” consortiums of Chinese businessmen, who broker venture capital deals with young artists and then trump up prices.

“There are investors playing the market, trying to work through the auctions, trying to stock up on one artist and play up the price,” said Johnson Chang, an art dealer for 25 years.

Price volatility also plays on the minds of many investors.

An index run by Artron tracking the price per square foot of the works of 100 top Chinese contemporary artists showed a rise of 40 percent last year.

“We are very careful in how we’re investing in the Chinese art market as we have pension fund money and not just total risk money,” said Philip Hoffman, chief executive of The Fine Art Fund in London, which has launched a $25 million Chinese art fund aiming for 20 to 30 percent returns per year.

Hoffman wants to create a diversified portfolio, including imperial ceramics that tend to see steady price gains.

“I‘m not on the prowl in terms of Chinese contemporary,” he said. “I‘m going to sit back and watch for real opportunity.”

Chuk-Kwan Ting, a former Goldman Sachs executive, plans to launch a $50 million fund this year to buy Ming and Qing Dynasty classical scroll Chinese paintings up to 500 years old -- China’s equivalent of European old masters.

“Chinese classical paintings are really undervalued,” said Ting, who expects 30 percent annual returns.

“If you want to invest in European art, it’s impossible to buy old masters,” she added. “There’s a window of opportunity in China for five to 10 years because the supply is very limited.”

Reporting by James Pomfret; editing by Dominic Whiting & Kim Coghill

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