Likonomics, Asian Art and Alternative Asset Management

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Likonomics, Asian Art and Alternative Asset Management

March 03, 2014 09:49

I often ask investment and legal professionals, "are you talking with your clients about their investments in antiques, art and collectibles? Are you offering informed advice on the management of a potentially significant portion of their overall net position?"

More often than not, unless the client has pro-actively discussed their alternative assets (better known to the owner as their "collection"), the investment or legal professional is in the dark. It has been interesting and rewarding to help these folks connect with their clients on this issue and begin to make informed decisions on the management of what is sometimes a significant investment.

Most recently, I authored a short article titled "What do Likonomics have to do with the price of Jade in America?" While the article was written for attorneys and wealth managers, it is an interesting and hot topic that may appeal to a larger audience - and illustrates how the art and antiques market is influenced by world events and economies. Since this article was completed, Ukraine has seen a growing unrest and the possibility for conflict for the US is great. We will explore how political (international and domestic) unrest can impact the alternative asset (collecting) market in the near future.

Read on, and as always, we welcome your thoughts and feedback. Click here to visit our blog and leave comments.

What do Likonomics have to do with the price of Jade in America?

More than you would think, actually! First, it may help to understand the concept of "Likonomics". Coined last summer by an economics professor doing some work for Barclays, "Likonomics" was first referenced in a scholarly article explaining the policies of China's newest Prime Minister, Li Keqiand (Click here to read the original article by Huand Yiping). Yiping described Keqiand's policies as:

interest in de-leveraging the Chinese economyslowing economic growth to sustainable levelsreducing the country's reliance on export markets What does this have to do with jade collectibles and the larger art and antiques market, you ask?

Over recent months, major international auction houses, including Garth’s, have seen a slight slowdown in prices for the best jade, porcelain and bronze Chinese relics. For several years, the market for Asian Arts has been driven by a bullish Chinese economy and a growing upper class eager to flash their new found wealth and acquire objects of status. Prices have risen to record - almost ridiculous - prices, with most informed trade professionals expressing a concern for the ramifications of an ever-stretching bubble (we reference the 2008 credit crisis and economic crash in our own country). Although Prime Minister Li Keqiand’s conservative approach to tempering growth has been met with skepticism by other economists since Yiping's article was published, the author stands firm on optimism for the reformation under Likonomics. Click here for a recent article by Yiping revisiting the topic and addressing the shifting and developing policies of Keqiand and his advisers.

In short, although we agree with Yiping's enthusiasm for Keqiand's influence on the Chinese economy, the luxury goods market still holds the long-term potential for a significant slowdown. The question remains: will the slowdown come with a screeching halt of the market or in a more tempered environment with restrained and realistic gains? We do feel confident that prices for the best Asian artifacts will continue to be strong (if a bit more realistic) for the short-term, but we hedge on the long term outlook.

Although most collectors have not built collections based on the investment potential (nor do we suggest that approach), anyone holding collections of significant size or value should be considering how and when (and where) to most advantageously dispose of their items. Gains for most US collectors of Asian art will be robust if realized now, and we recommend seizing the moment to liquidate investment or collection positions that include Asian artifacts.

Adding to the concern for managing an Asian art portfolio is a recent executive order banning the sale of ivory in the United States. Following in the footsteps of the EU, and developing on the heels of an almost complete ban on international shipments of ivory, the policy is unclear at best (click here for a link to a fact sheet issued by the White House on the order). For now, the sale of antique ivory items seems to be permissible, but the level of documentation that will be required may cripple the market for such goods. As the Department of Fish and Wildlife works with the executive office to determine the best policies for implementation and enforcement of the ban, it has never been more important to deal with a reputable and expert representative on the sale of antique ivory goods. This ban, combined with issues surrounding international shipment and ownership, has had a chilling effect on prices for all but the very best items. A review of ivory collections is truly a critical move for collectors and their advisers to undertake as soon as possible.