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| Opportunities & Exposures: Art |
Back Door to China
Christopher Tsai
09/01/2004
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The Chinese economy has been on a tear. In 2003, the GDP rose 9.1 percent to
$1.4 trillion. Over the past 25 years, China’s inflation-adjusted GDP has
expanded at an average rate of 9 percent per year. The Chinese economy is now
the sixth largest in the world, more than double the size of Mexico’s. As China
builds its infrastructure and liberalizes its relations with the rest of the
world, its growth will continue. No wonder investors are eyeing this fascinating
country of 1.3 billion people.
Despite these rosy figures, actually investing
in China can be tricky. The state owns some of the best companies, and they
often receive favored treatment. That means investors may end up with shares in
inferior businesses. Also, despite the fact that the renimbi (China’s currency)
is undervalued, it is difficult to buy assets in large quantities and even more
difficult to sell them. Where can investors turn? I believe that Chinese
contemporary art is an exciting investment opportunity. By investing in Chinese art, we can obtain an undervalued asset and enjoy its beauty while
benefiting from the future growth of the country’s economy—all without the
complications of investing in Chinese stocks or real estate.
Ground Floor
The term Chinese contemporary art refers to works that date
from around 1990 onward. Because China has some of the best art schools in the
world (Central Academy of Fine Arts in Beijing and China Academy of Fine Arts in
Hangzhou are examples), many of its artists are highly skilled. It is no
surprise that museums and savvy private collectors are purchasing their work.
Yet Chinese contemporary art still remains largely undiscovered by international
art connoisseurs. That may be changing: The first major exhibition of Chinese
contemporary photography in the United States was recently on view at the
International Center of Photography and at the Asia Society, both in New York. A
major exhibition on contemporary Chinese painting or sculpture has not yet been
mounted in the U.S., but I have no doubt we will see one soon.
While the
Mexican economy is less than half the size of China’s, top Mexican contemporary
artists command prices of around $1 million. By comparison, the fineest Chinese
contemporary paintings sell for around $50,000, and photography by leading
Chinese artists is available for around $5,000. As the Chinese continue to
accumulate wealth and more collectors and investors realize that they can own a
significant piece of art without spending a fortune, values will move
upward.
Before building a collection, look at a wide range of Chinese
contemporary art to decide on which medium to focus. Some of my favorite artists
include Rong Rong (photography), Wang Qingsong (photography), Zhang Xiaogang
(painting) and Zhang Huan (photography and sculpture). Because U.S. museums are
just beginning to build their collections, I would recommend visiting galleries
that specialize in Chinese art. One of the best dealers is Chambers Fine Art in
New York.
To successfully invest in art, one can apply many of the same
skills that I use as a money manager. These include:
• Research the artist and the competition. This method helps the
collector better understand the importance of the work and its value.
• Look for strong fundamentals, both with the artist and the work. Does
the artist consistently produce quality work? Which galleries represent the
artist? Where has the artist’s work been shown? How has the artist developed
over time?
• Treat art investments as a portfolio allocation. Investors would not
overweight their investment portfolios with too much of their wealth in, say,
stocks or real estate. Set a portfolio allocation percentage for investing in
artwork. As there is generally less liquidity in art than in stocks or bonds, it
is even more important to have a long-term view.
• Do not overpay. The lower the price, the greater the potential for
capital appreciation. While there is an intangible benefit to owning art, we
must decide how much the tangible asset is worth. | Christopher Tsai is president and chief investment officer of Tsai Capital,
a New York-based investment firm. |
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