Fine Wine : Grapes of Wrath

by Guy Hemphill

In recent years, the long held assumptions about fine wine investment have undergone a serious stress test.  According to the Liv-ex Index for the top Bordeaux 500 wines – Bordeaux’s finest dropped from early 2010 all the way to July 2014, with only modest gains up to the time of writing.  En Primeur, once a staple of many a portfolio, has similarly failed to ignite over the same period, due in part to over ambitious release prices.

Before 2010,  Liv-ex indices recorded an average double digit return for the preceding 20 years, with earlier studies suggesting an inflation beating return back to 1900.  As long as you held for five years or more, both short term drops in price and the spread between what a merchant sells and buys back at, would generally be absorbed to show a decent return.

Investors who bought before 2010 may still be nicely positioned, but there hasn’t been a five year period like this before.  What happened?

The best answer appears in a word to be – China.  In 2009, the chinese market ramped up demand to unsustainable levels and the performance of the chinese economy and a change in attitude to gift giving, seems to have had a hold on the market ever since.  The China Producer Price Index (PPI) which measures changes in the price of goods in China has moved in almost precise correlation with the fortunes of the fine wine market on a global basis.

The big question may now be this – since fine wine prices have receded to levels of five years ago before China’s entrance into the market, will the traditional markets of Europe and the US now re establish themselves as being the major determiners of growth?  If so, could we see a return to historical patterns of performance?  Only time will tell, a return to steady growth on the basis of low production levels and inevitable consumption would be welcome.

In the meantime, it must be said, there are some eye watering prices out there – Margaux 2005 at sub £5,000 per 12, with a previous trading high over £9,000.  Lafite 2009 at £6,200 having traded up to £15,000 in 2009, perfect Parker score 100 point wines such as Pontet 09 at £1,400…..the list goes on…

May just be time to stock up the cellar after all…

All views expressed are the personal views of the author and accuracy cannot be guaranteed.  The views expressed are for entertainment and informational purposes only and do not constitute investment advice. Always seek the view of a professional qualified adviser when considering making an investment.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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