The art market is faced with a new reality; it has shifted from a seller’s to a buyer’s market. For those with liquidity, buying art and storing it until prices rise again has proved to be a wise way to make money in today’s art market. Rather like in property, those who can afford it tend to sweep up bargain buys in auction houses whose prices have been reduced, then sell them on in two to three years. This means the art market avoids stagnation and some of the best deals can be obtained now if one is properly advised.

The art market today presents the collector with many unique opportunities which come up only once in a generation. Instead of hoping for records, Christie's and Sotheby's are offering for sale only rare paintings that would be the envy of any world-class collector or museum in order to lure the serious collectors who still have money.

To date, the international art market has become an industry that turns over approximately $100 billion annually and has seen substantial growth over the past decade. This significant turnover is partly attributed to an influx of new buyers from emerging markets such as China, India, Middle East and Russia. In 2008, it was revealed that a Russian billionaire was the buyer of an $86.2m triptych by Francis Bacon. Days earlier, he paid $33.6m for Benefits Supervisor Sleeping by Bacon's old friend Lucian Freud. If these super-wealthy collectors continue to buy with confidence, the international art market can weather the economic downturn.

Art and recession: A brief history
Art market tends, as one might expect, follow those of the economy. After the heady days of the 1980s, the price of art plunged in the early Nineties. However, it was a very different market from today, with collectors from America, Europe and Japan buying largely with borrowed money. When the Japanese economy faltered, so did the art market. It remained bleak for much of the Nineties, after which it began to rise slowly. A tiny dip in 2000 was followed by a further rise, with some parts of the market, such as contemporary and Russian art, growing quicker than others. Buyers in the Eighties and Nineties formed a narrow pool of collectors. Today, there is a much more global group of collectors due to growth of economies in Russian, India and China.

Opportunities in 2009
The art market in 2009 presents to collectors opportunities to acquire works of fine art at competitive prices. Now more than ever, an independent art advisor with access to both the primary and secondary market is key to identifying prized works that are below market value and that will appreciate as the global economy turns the corner.

Another opportunity that prevails is lending against art. The most advantageous time to borrow against art is when equity valuations are low or stock markets are turbulent, as is the case in the current market. And while art-backed loans usually carry a higher interest rate than equity-backed ones – in current market conditions, Libor plus 2.5 per cent or more – their relative price stability has benefits.

Art as an asset class
Serious interest in art as an investment began around 2000 with the decline in the world’s leading stock markets when investors learned that stock markets can be alarmingly volatile. While long-term economic prospects remain uncertain, the allure of fine art as an alternative hard asset class remains strong for both private and institutional investors.

The investment potential of art remained largely un-quantified until the experience of the British Rail Pension Fund provided hard empirical evidence. The Fund bought widely between 1974 and 1980, and by the time it had completely disposed of its collection in the mid 1990s it had achieved an overall rate of return of 11.3% per annum, well in excess of that needed to beat inflation. Certain individual collections yielded significantly better returns (up to 21.3% per annum for Impressionist art).

The statistics have also effectively refuted the widely held belief that art prices are too volatile to allow it to be treated as a serious investment. For example, in 2003 a leading US financial institution used standard risk / return techniques to demonstrate that adding fine art to a diversified portfolio produces a slightly greater return for each unit of risk, and a significantly better return with less volatility than most asset classes on their own.

Investing in both art and stocks can reduce the volatility of a portfolio by up to 20% without sacrificing returns. As with any asset class, it is important when considering art as an investment, to seek experienced and professional advice to ensure investment objectives are met. This is particularly the case in a buyers market when numerous opportunities may arise.

HSBC Private Bank can offer you access to a global network of art and design experts to suit your needs.  Find out more about our specialist design and art advisory service.