Tuesday, January 24, 2012

Sotheby's Looking Ahead

In October 2007 Sotheby's (BID) reached a high of $57 then the recession hit and its shares dropped violently they bottomed out with the rest of the market in March 2009 at a price of $6.47.  Not all investors go to the bond market during a crash some move to museum quality art to hedge the storm.  Sotheby's as a stock is fairly volatile with a beta of 2.33 but does offer an alternative to other forms of investing. 

The art world is performing well as the affluent are still buying, yet the world of art doesn't offer too much for the average working class.  To serve the small percentage of the extremely wealthy, art galleries & auction houses do not need to employ a massive amount of staff.  As for returns the Mei Moses Art Index states it has performed much better than securities and bonds with returns above 10% yet we must consider the expense that comes with insuring expensive million dollar art, commissions and taxes.

The coming year seems quite profitable for Sotheby's and Christie's they are expecting big sales in London even with the high unemployment and european concerns.  The auctions have delivered results despite worries but the wealthy Chinese have been the ones raising the paddle.  Sales have also been strong in New York with auctions setting records in December 2011. 

The Chinese art market is hot some of their new artists are going straight to auction and being snatched up at high prices by the extremely wealthy Chinese buyers.  Qi Baishi made the top five list on Artprice.  Of the total global art revenue China snatches up the largest amount with about 40% the U.S. comes in at second with 25%.  The Chinese are buying their own artists' work and giving them the Midas touch, making them the modern masters of the universe.  With China's low unemployment rate at 4.10 and their consumer confidence at 97 it is not hard to see why they are buying at will and making their artists boom in a small amount of time.

There are concerns that other luxury good providers are facing tough quarters due to the decrease in sales from Europe and the U.S. due to the economic concerns, this may eventually catch up with the art world.  Despite this investors are betting that Sotheby's stock price will move above $36 by April, call options activity on the stock have increased steadily.

Faith in Chinese contemporary art is strong for now, but if the Chinese market were to cool down and the art market were to crash, contemporary art prices would fall the hardest as it would be hard to prove their value.  Back in the last week of September 2011 Sotheby's hit a 52 week low of $28 partly because of the fear that China was cooling down.  China plays a big role in the sale of luxury goods they are snatching up alternatives to stocks & bonds they like art but they are also getting creative and buying gems, wine as well as other luxury goods to invest in.

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