Stocktake: art sales, US markets, buying in Europe, name changes, growth in EFTs

Proinsias O’Mahony on the latest moves in stock markets

 

Picasso purchase and the greater fool theory Is art a good investment? Some people think so, with Christie’s last week becoming the first auction house to sell more than $1 billion worth of art in a week, including a record $179.4 million for a Picasso painting bought for $31.9 million in 1997.

Enthusiasts insist these are not isolated cases, arguing the Mei Moses World All Art Index has roughly matched the S&P 500 over the last 50 years.

However, there are good reasons why art funds have never taken off. These include high annual expenses due to maintenance and insurance costs; no dividends; an illiquid and notoriously faddish market; and art dealers’ commissions of up to 25 per cent. As for art indices, they are plagued by survivorship bias, and hopelessly unreliable. Unlike stocks, a painting cannot be rationally valued; investors are subscribing to the greater fool theory, the idea they can flog it on to another mug for a higher price.

Others have different motivations. According to a Deloitte report last year, 72 per cent of art professionals believe “buying access to exclusive social networks” was a “key motivation” for buyers. In other words, the Picasso buyer may have paid $179 million to impress his buddies. US stocks stuck in a range While indices in Europe and Asia have offered action aplenty in 2015, the S&P 500’s trading range – a peak-to- trough move of just 6.3 per cent – has been the smallest in nine years. It is, as technical analyst Carter Worth said last week, “almost as if they closed the market”.

Bears sometimes equate low volatility with complacency, and argue the volatility over the last 50 days has been akin to that seen in mid-2007. That was a case of the calm before the storm, and a volatility explosion was just around the corner.

However, conditions were almost identical in 1995, Bespoke Investment Group points out, with stocks eventually breaking out of their range and going on to soar over the next four years.

The truth is we’ve rarely seen such a range-bound market, and neither bulls nor bears should deduce much from a handful of past instances.

2015 was meant to be different, with most analysts assuming the looming normalisation of interest rate policy would lead to an increase in volatility. Instead, the date for rate hikes continues to recede – markets now believe rates will not increase before December – indicating index action may remain sedate for some time yet.

Buying the dip in Europe Last month, the Euro Stoxx 50 was flying high, but recent declines mean the index has been flirting with official correction territory – that is, a 10 per cent fall.

Short-term index traders might be advised to buy the dip. Since 1986, notes Nautilus Research, the index has suffered 15 double-digit declines from a 52-week high. A month later, it was higher on 12 occasions.

Gains averaged 3.85 per cent, almost seven times higher than the average monthly gain.

Markets are not obliged to follow the historical script, but the odds of a short-term rebound look good.

ETF assets near $3tn Nearly $3 trillion is now invested in exchange-traded funds (ETFs), according to London firm ETFGI, which expects ETF assets to soon overtake hedge funds.

In the US, ETF assets have enjoyed a near 10-fold increase over the last decade, to $2.1 trillion; Europe accounts for another $511 billion.

ETFs, which are like conventional funds but trade like shares, are proving attractive to long-term investors and to traders; to passive investors who simply want to match index returns, and to active investors who want to target specific sectors or certain niche strategies.

Globally, roughly 10 times as much money is still invested in mutual funds as it is in ETFs, but the trend is unmistakable.

With more and more ETFs hitting the market, fund managers’ role appears increasingly obsolescent.

What’s in a name? Struggling property developer Shanghai Duolun Industry announced last week it was changing its name to P2P Financial Information Service.

The firm, which has never been associated with financial services and which has yet to enter the peer-to-peer lending business, has also registered the domain www.p2p.com. Currently, the website consists of smiling faces and a message saying: “This is a domain name with the value of one hundred million dollars”.

That was good enough for investors.

The stock rose 10 per cent – the daily maximum – last Monday, and by another 10 per cent on Tuesday, before regulators suspended trading “to protect the interests of investors”.

Name changes and strategy U-turns are increasingly common in China. In the first four months of this year, according to The Beijing News, 79 public companies changed their names.

It’s reminiscent of dotcom fever in the late 1990s.

Back then, one study found, US companies that added .com to their name averaged a 74 per cent gain within 10 days.

What’s in a name? Quite a lot, it seems.

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