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Donald Trump’s protectionism depends on the dollar

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Donald Trump put ‘America First’ front and centre of his pitch to business elites at the World Economic Forum in Davos last week. WEF is a club for business leaders, financiers and politicians who mostly share a suspicion of nationalism and a belief that globalisation is good. But Mr. Trump, surely knowing this, went to sell his country.

“America is open for business and we are competitive once again.” He praised his administration’s efforts in cutting taxes, slashing regulations and renegotiating trade agreements. The results, he boasted, were billions of dollars of announced investments in the United States.

However, competitiveness in international markets can also arise from a cheap currency. The US President didn’t mention this anywhere in his speech, but one had the impression that if his other policy proposals fall flat, the option of pushing down the dollar would be the last resort in his fight against so-called unfair trade.

At face value it seems that movements in the US trade balance have had little to do with the real effective exchange rate (REER) in recent times, as the chart below shows. To improve the fit of the two series, we would need to lag the real exchange rate by three years, but it’s implausible that it takes that long for businesses to react to changes in the real exchange rate.

There will never be a perfect relationship between REER and the trade balance, especially the US trade balance, for a number of reasons: because not all trade is price-sensitive; because the dollar is a safe-haven currency and the world’s reserve currency of choice; because many commodity contracts are priced and settled in dollars; and because speculation allows investors to take bets on the future path of national economies.

However, it remains the case that REER is the variable that ‘co-moves’ most closely with the trade balance. Sometimes the REER responds to the trade balance, driven by international capital flows and demand shocks; and other times it’s the trade balance that responds to changes in the REER. That said, the discrepancies of the 2000s – during which the dollar consistently fell but trade deficits grew – look rather large and need some explanation.

The 1990s saw the US boom relative to the rest of the world, with growth averaging close to 4% under Bill Clinton. It was these fundamentals that led to the dollar appreciating strongly during the decade as foreign capital flowed in, a process that accelerated immediately after the Asian Financial Crisis in 1999. The Clinton Administration also favoured a strong dollar because it kept inflation and interest rates low and put pressure on domestic producers to improve their competitiveness through investment. But it also caused the trade deficit to rise sharply.

While the dollar fell against most DM currencies after the US fell into recession in 2002, it continued to rise against currencies of key emerging economies which represented around half of US trade deficit in goods at the time. The dollar continued to rise against the Mexican Peso until 2007 and remained flat against the Chinese Renminbi until 2005, causing the trade deficit to keep rising. Mexico and China alone accounted for over 40% of America’s 2006 trade deficit.

It was largely China’s dollar-renminbi peg between 1995 and 2005 that distorted the relationship between REER and the US trade deficit after 2002. Large-scale capital export from China to the US also maintained a distended trade deficit until 2008.

Accusations of currency manipulation by the United States’ trading partners pre-date Trump by almost twenty years. In 1988, the US Congress passed the Omnibus Trade and Competitiveness Act, which called for more action to be taken against nations which were identified as fixing their currency to steal an advantage. It was only in 2005, ten years after China had begun holding the renminbi at 8.28 yuan to the dollar, that Congress’s threat of tariffs against China – on the grounds that the peg turbo-charged the US trade deficit by preventing the renminbi from rising – caused the country to abandon the policy.

In the immediate aftermath of the Global Financial Crisis, China halted its ‘managed appreciation’ and resumed its dollar peg at 6.83 yuan to the dollar for over two years, which led to new accusations of currency manipulation as the US trade balance started to tick up again.

Since the end of 2011, the dollar has rallied, benefitting from the combined effect of being the first major economy to recover from the GFC and, more latterly, being the main recipient of the ‘search for yield’ process that has followed loose monetary policies around the world. But as of yet, the trade deficit has yet to deteriorate further, although the most recent figures suggest it is rising.

Last year, the dollar lost close to 10% of its value on a trade-weighted basis and it is now common to hear talk of the dollar as now being ‘weak’. But this is not so. By recent standards, the dollar is still relatively strong, and on a short-term basis there is scope for capital repatriation from the Trump tax reforms to push the dollar up this year.

Fundamentals, however, suggest that unless the dollar falls over the medium run, and there is good reason to think it will (the return of Europe, the strength of EMs, normalisation in policy outside the US), the trade deficit should rise, and this creates a source of political risk from Donald Trump.

Trump cares about the trade deficit. He thinks that a large deficit means that the US is somehow losing money. It is also true that his core voters – blue collar, manufacturing workers – struggle with a strong dollar. If his tax and regulatory reforms fail to bear fruit for the people that he claims to represent – with firms using the benefits of depreciation expensing to fund stock buybacks rather than capital investment – we would not be surprised if this unpredictable President turns to more drastic action on currency and trade restrictions, including managed interventions and tariffs. And that would create all kinds of problems for businesses that use international supply chains, central banks that have independent mandates and – in extremis – whole economies that depend on the rules-based international trading system.

Values and money – What Future for Ethical Investment

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By Seb Beloe, Partner, Head of Research at WHEB Asset Management

‘Give me a child until he is seven and I will give you the man’. So said Saint Ignatius of Loyola the principal founder of the Jesuit order, underlining that much of our character is formed at an early age and once formed is difficult to change.  Today psychologists call this ‘cultural cognition’; a tendency of individuals to conform their beliefs to values that define their cultural identifies.  People don’t change their minds much because what they believe is often connected to who they think they are.

How people think about ethical investment also tends to be rigidly set. For most financial professionals who normally pride themselves on their objectivity, ethical investment is a synonym for under performance. For them, the mere act of introducing moral considerations into investment decisions mean that you would be inevitably accepting that your portfolio as a whole will underperform.

This may or may not be true when such decisions are taken on a purely moral basis. But the key point is that for certain issues, including many environmental issues, decisions are no longer primarily about morality. Addressing issues like climate change, water scarcity and air pollution, are today much less about ethics, and much more about commercial, regulatory and technological considerations. Investing in a company that makes cleaner powertrain technology for cars clearly has a positive impact in helping to reduce air pollution. But the investment rationale for investing in such a business is that demand for these technologies is growing rapidly as regulators around the world force the car industry to clean up its act.

WHEB Sustainable Investment Themes

WHEB Sustainable Investment Themes

WHEB is an investment firm focused on investing in ‘positive impact’ businesses. We have found that companies that are exposed to key sustainability themes such as resource efficiency, sustainable transport, health and education have enjoyed much higher rates of growth than the market as a whole. Over the last five years, our research shows historical sales growth has been between 8-9% per annum for companies that fit these themes, while the rest of the market (as measured by the MSCI World) has delivered less than 5% sales growth.  In a world that isn’t growing very much, this is a part of the market that is enjoying substantial and sustained growth.

So where does this leave ethical investment? Ethical investment emerged in response to specific moral concerns about certain industries. It was defined by what it didn’t invest in. But the world has moved on. The critical problems that society faces are around ageing, urbanisation and environmental issues. Free markets have responded with businesses developing new technologies and new business models that help solve these issues.  Is this ethical investment? You could call it that. But it is also just good investment.

Investors need to take transition risk seriously

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Last week, Blackrock CEO Larry Fink wrote a letter to CEOs calling for them to “serve a social purpose”. A key phrase reads:

“Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

He explicitly tied financial performance to meeting sustainability objectives:

“Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.”

When the man who oversees $6trn in assets says sustainability matters, the theme cannot really be regarded as a purely ethical activity.

I was in Zürich last week for the 2nd FINEXUS conference on Financial Networks and Sustainability, attended by leading practitioners, policy makers and academics. The purpose of the conference was to assess how sustainability criteria can be better integrated into the policies of central banks and development banks, the lending decisions of retail banks, and the portfolio decisions of asset managers.

If the forecasts for climate change are right, we are currently on course for irreversible environmental damage. We all know what this means: coastal flooding, water shortages, and lower crop yields; not to mention the effects on our oceans and for biodiversity. As the impacts of climate change will be concentrated in the Global South, we can expect huge intercontinental migrations that make the 2015 Syrian refugee crisis look like the tip of an iceberg.

The 2015 Paris Agreement commits countries to take action to limit the amount of global warming to 1.5C by 2100.

As Stanislas Dupre – member of the High Level Expert Group on the EU’s sustainable finance taskforce – explained at the event, the investment industry is funding a path that leads to warming of 4-6 degrees on the basis of its current choices, financing infrastructure that locks in emissions for decades to come.

Putting these two facts together means that investment managers who do not take sustainability seriously are likely to find themselves on the wrong side of transition risk in the coming decade. This is because commitments to the Paris Agreement make it highly likely that governments will regulate their economies to discourage and penalise carbon-intensive activities. It has almost nothing to do with the moral case for unilateral action and everything to do with the future tax, regulatory and legal changes made by governments which have committed to going green.

Asset managers who hold securities tied to carbon-intensive firms may therefore face significant losses. Huge amounts of capital need to be mobilised into green investments, and states committed to the Paris Agreement will take steps to facilitate this process. The ultimate risk that firms and investors face during the transition is being left holding stranded assets that have lost their value by either regulatory or technical changes.

There are other kinds of transition risk – such as the risk of a bubble in green assets – but the one that is immediately relevant for industry is the risk of stranded assets. This could plausibly arise in a number of ways:

  • An announcement on a global (or national/regional) price for carbon
  • New technological breakthroughs in the low-carbon sector
  • The achievement of a price parity between renewables and fossil fuels
  • Changes in legislation reflecting the legality of GHG emissions
  • The forced nationalisation of selected assets
  • An increase in pressure from shareholders, employees and activists to limit GHG
  • Commitments to reduce implicit subsidies of fossil fuels (which are very large)
  • An increase in accuracy in the monitoring and measurement of emissions for attribution to firms
  • An increase in social awareness of the risk of GHG emissions

Any of these factors could affect the long-term return from carbon assets in portfolios.

The conference also hosted panels that discussed the need for stress-testing for climate and transition risk. This would be an activity that would help asset managers, central banks and development banks understand the possible consequences of the renewable energy transition.

This is a new area of research that could inform the policy of central banks in the future, especially when it comes to QE. If it is understood that carbon assets present a threat to financial stability as the effects of climate change on the economy take hold, central banks could make the case to favour ‘green’ assets (such as green bonds and companies that have low carbon intensity) when engaging in asset purchases.

A future Basel IV agreement could see rules that impose stricter capital requirements on banks that lend significantly to carbon-intensive activities. These policies could therefore reduce the cost of capital and increase its availability for green companies.

Other policies could have a similar effect. Mafalda Duerte from the World Bank’s Climate Investment Funds explained how state development banks could further raise the NPV of green activity by issuing green bonds that pay for subsidies and ‘credit enhancements’ to green firms.

Further, tax benefits could be offered to issuers of and investors in green assets, again with the aim of lowering the cost of capital as well as increasing the depth and liquidity of green asset markets.

These policies and others create transition risk for firms and investors, and they need to be assessed and quantified.

There is no immediate threat to existing portfolios but the message from the conference was that the status-quo will be costly in one way or another, and quite soon. Companies that invest for the long-term need to consider the issue of sustainability. There are opportunities as well as risks, and there will be returns for being on top of both.

 

A meeting with Michel Barnier

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John Longworth sits on the Hottinger Group’s Advisory Board, was Director-General of the British Chambers of Commerce, and is a leading Brexiteer. Here, John writes in a personal capacity, and all views expressed in this piece are his alone.

If the latest reports from Berlin are to be believed the Germans are insisting on substantial payments in order that the City banks have “access” to the EU market.

It is not clear whether “access” means equivalence, in which case UK based banks are being discriminated against versus US or Japanese banks, which is outrageous; or something better, in which case it would be unprecedented for the EU and completely undermine Barnier’s position. It is clear that Barnier is being instructed to take a hard line in order that the Germans can mug us, if the reports are true.

We should bear in mind that while financial services contribute to the treasury they represent 8% of the economy, less than manufacturing. In addition to this, only 9% of financial services is subject to passporting; there is a Single Market of sorts in these services which represents just 0.7% of GDP. Of course there are additional professional services supporting this activity but we should not let the tail wag the dog and it is only worth so much. As for the rest of financial services or indeed Services in general, there is no single market in the EU do why should we expect to have “access”?

The government need to wake up to what is in the country’s interests and start to bat for Britain.

Meeting with Barnier.

It may have come as a surprise to some of my colleagues at the meeting with Barnier, but not to me, that the EU is determined to put the “EU project” ahead of the employment prospects and wealth of its citizens and, as a consequence, take a very hard line with the UK in the upcoming negotiations. The Gaullist Mr Barnier accepted my compliment that he had successfully won the first round of negotiations, albeit against a weak adversary in the form of the UK government. It was clear that he and his EPP (European Peoples Party) colleagues, who control all the major EU institutions, are determined that the UK should be shackled as much as possible in respect of our newly won economic freedoms in order that we may not compete with the EU.

The position of the Chief Negotiator is entirely rational and internally consistent if the “project” is key to the interests of the EU (and certainly to the chief EU paymaster, Germany) and it is vital that our government grasps this.

Britain has the prospect of prospering with or without an EU trade deal, provided we retain our newly won freedoms and are prepared to leverage these. The chances of a special arrangement for the UK are limited, so an early resolution of the likely outcome is essential if business on both sides of the channel is to have time to plan and implement necessary measures. Certainty on the direction of travel is more important than the outcome itself. I made these things clear to Mr Barnier and also that there is an increasing majority in the UK in favour of getting on and leaving the EU. Brexit is happening and Britain is determined to see it through.

Crucially, the meeting made it clear to me that the British government needs to adopt an equally tough line in the interests of our country, equal to that of the EU 27, and that will include an early view on whether a trade deal is likely to be forthcoming, with serious preparation for a no trade deal scenario. In any event the government must be prepared to leverage our economic freedoms to boost business and the economy, with or without a trade deal, rather than trying to preserve a poorer version of what we have now. which can only result in our being worse off. Preparations for this must start now.

Investing for impact without being an ‘Impact Investor’?

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If you are feeling disillusioned with modern capitalism and would like to influence how corporations behave there are, essentially, four ways in which you can make a difference:

  1. Vote for political representatives who will create and maintain adequate regulatory environments and boundaries for companies to operate within.
  2. Vote with your wallet and consume only products and services that do not have unmitigated negative impacts on the environment or society.
  3. Control the flow of your excess capital through the banking system to fund only companies who behave appropriately.
  4. Invest only in companies that have positive impact and avoid investing in companies that have negative impact.

The influence of voting decisions and consumer choice is well understood, but investment is probably the most overlooked method of influencing a firm and may have the potential to be the most powerful.

Each time an investor decides to buy a share in a company, she is deciding to provide capital to that company. Companies thrive when their ‘access to capital’ is unconstrained and boards often focus more on this than anything else. From their perspective, while politicians are a nuisance and customers a necessary evil, capital is the king that can make their day.

In a wider context, every company has an impact on its stakeholders and surroundings. Some can be large. Most people are aware of the negative impacts. Large companies use significant chunks of the world’s natural resources and create massive amounts of waste. They use ‘tax minimisation strategies’, mislead their stakeholders with disingenuous PR, and use their capital to sway political processes in their favour. Companies that have a negative impact on society and the environment also create long-term legal, regulatory and financial risk for themselves, their shareholders, employees, partners, neighbours and others.

But companies can act as tremendous forces for good. They employ tens of millions of people, buy billions of dollars of local produce and provide basic services for the poorest people on the planet. They build infrastructure and develop innovative solutions that have the world-changing potential that we so desperately need. This potentially positive impact of large companies materialises only with flows of capital, which are influenced by each investment decision. These decisions may have a small impact individually but, when many investors act together, great changes can be achieved.

In recent times, many fund managers have ‘branded’ their funds as responsible, sustainable or ethical, without much external assessment or oversight. This has led to confusion amongst investors and a lack of consistency across peer groups. Impact-Cubed recently conducted an internal assessment of the ‘impact’ of 30 well known sustainable portfolios in UK using a proprietary methodology based on publicly available environment, social and governance data. Disturbingly, for the three poorest performers, the ‘impact’ score was actually negative. About 60% showed quite dismal results. Only ten funds were really delivering the impact they promise in their marketing.

In order for your own investments to have a more positive impact, we recommend focusing on three simple things:

  • Consider the current impact of your investments.

The way you invest your wealth and assets that you control impacts the flow of capital to companies. Your long-term investment plan will not only influence the risk and return of your portfolio but your decisions impact on the wider stakeholder group affected by these companies.

  • Ask your wealth manager to measure the impact of your portfolio

Look at your existing portfolio of funds and listed equities. Is it aligned to your view of the world? Are you knowledgeable of and comfortable with the impact it has? Do you feel sufficiently compensated for the additional risk that negative impact potentially has if you own companies which may be causing harm, such as tobacco or fast food companies? Could you perhaps set some targets together with your wealth manager to ensure you reduce that risk over time?

  • Adjust accordingly

If you decided to reduce ‘sustainability’ risk in your current portfolio and it is not sufficiently aligned, some positions in your portfolio may need to be adjusted. While this might seem difficult and tiresome, after the adjustment you can rest assured. It is possible that you will have ‘future-proofed’ your investments’ risk and return. Furthermore, you did the right thing. Every investment decision towards positive impact makes the world a better place, even when you are seeking returns through listed equities and funds alone.

Guest contributors Larry Abele, Arleta Majoch and Antti Savilaakso are hedge fund managers who have been investing with impact for over 10 years. They recently launched an Investment Impact Measurement tool, Impact-Cubed, which enables investors to measure and manage the impact of their investment portfolios. An account manager can use the tool to help you understand the role of impact in your investment portfolio and to set targets for the future, if you desire. Details of costs can be found out on request.

Low global interest rates are the new normal

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The global economy is in fine form. Recent figures tell us that in the last year the United States grew by 3.0%, the euro area by 2.4% and China by 7.0%. Growth in almost every significant nation has outpaced market expectations. The exception for now is India, which is still struggling with the fall out of Prime Minister Modi’s demontisation policy.

Despite favourable monetary conditions, inflation is below 2% in most developed markets and below 4% in most emerging markets. This has created a benign environment for global trade; for corporates, whose rising pricing power has fed through into earnings; and for risk assets, which have benefitted from low volatility.

We are not completely convinced that this positive moment for the world economy is sustainable and we have raised concerns about the lack of productivity growth in the G7 and the financial stability risks associated with easy money. Nevertheless, we think the outlook for both developed and emerging markets over the next 2 years looks relatively positive.

If productivity continues to disappoint, inflation will start to rise. If money stays easy for too long, financial stability tends to weaken, a particular concern of the Bank of International Settlements. A key question therefore for both economists and investors is – as ever – if, when and by how much will central banks raise interest rates. Central banks have a responsibility to manage both inflation and general financial conditions.

There are two different issues here. One relates to the nominal interest rate; the other refers to the real interest rate. Nominal interest rates remain in an exceptional place. Policy rates in Europe, Japan and the US are below 1.5%. Sukanto Chanda at Deutsche Bank has assessed the $8trn global credit market and finds that 17% of all sovereign and credit debt trades at negative interest rates. These positions depend almost entirely on central bankers’ monetary policies and are likely to reverse as soon as banks embark on a sustained course of balance sheet and policy normalisation.

But this leaves the question of how high interest rates need to go to complete the process of normalisation. To get to an answer, we need to know what the risk-free real interest rate consistent with full employment is, as this reflects the underlying balance of supply and demand in credit markets.

rfr2

A study in 2014 by former Bank of England Governor Mervyn King and David Low was the first that attempts to estimate the ‘global risk-free interest rate’. They use 10-year inflation indexed government bonds across developed nations as a proxy and find that yields have fallen by about 450 basis points since 1987 and are close to 0%. What this means is that developed economies that are neutral on monetary stimulus require nominal yields to rise to around 2-3%. Since many state bonds are not far off, this suggests that the amount of further tightening required from banks is limited.

The drivers of this multi-decade shift are numerous and relate to both the global desire to save (which has gone up) and the demand for credit (which has gone down). This means that global investment as a share of GDP has remained relatively constant over the period despite a large fall in the cost of credit.

The three supply-side factors that have increased the desire to save include: (1) reductions in the dependency ratio; (2) the creation of a savings glut from emerging economies in Asia, and more recently Northern Europe; and (3) rising inequality, as wealthier people save a greater fraction of their income.

On the demand-side, pessimistic expectations for innovation and productivity growth have cooled demand for credit. The falling price of capital also means that businesses need to spend less to meet their production needs.

So if low rates are the new normal, we have to revise our outlook for expected returns for risk assets. If new innovations are not forthcoming and more global capital chases fewer investment opportunities, returns are likely to stay low.

There are risks to policy too. Low rates and volatility will encourage ‘searching for yield’ – that may lead to problems for financial stability down the road.

Additionally, if central banks are committed to low inflation targets, there is much less they can do to stimulate the economy in the event of another recession. Nominal interest rates cannot credibly be held much below 0%, so banks will either need to rely more on unconventional measures such as QE or raise their inflation targets. It also means fiscal policy will be more important in turning around depressed economies.

With real interest rates at close to 0%, the bar for fiscal expansion is effectively lower as debt interest costs become almost a non-issue. The question in the future will increasingly be: does extra spending create at least as much in GDP? And the answer will almost always be yes.

Changes in the global economy in the last thirty years have reshaped the landscape for markets and policy. Today, both markets and policy are in new, unchartered territory. This need not be a bad thing, but the uncertainty puts additional responsibility on the industry to look out for known unknowns and be ready to respond to any unknown unknowns.

Fine Wine, Investing in History

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By Anthony Russell, Managing Director at Quantum Vintners

When looking at high-performing wines from an investment perspective, there is a strong leaning to Bordeaux, followed by Burgundy and Champagne, more recently Tuscany and lastly to certain ‘trophy’ wines of the New World. But when and why did these wines become an asset class of their own, with their own performance charts and pricing indices?

To answer this question it is firstly important to review the history of the most prestigious wine-producing regions in France right back to the 12th century. This insight gives us a greater understanding of how they are defined, and the factors which have and will continue to influence their impact on the global wine market.

Bordeaux has a long trading history with England. Its wines were given ‘royal approval’ when Eleanor of Aquitaine married Henry Plantagenet in 1152. The wine producers benefitted from proximity to Bordeaux as a key port and nexus for international trade for many centuries. Tradesmen were attracted to the cosmopolitan city and its wines became well known on a global platform. Over time, the region benefited from significant foreign investment and many of the chateaux founders have English, Irish and Dutch origins. The area became closely associated with success and entrepreneurialism.

During this period, although Bordeaux wines became increasingly popular in England, a preference for burgundies was maintained amongst the French aristocracy. Up until the French Revolution it was Burgundy, known as ‘the wine of kings’ that graced the royal courts at Paris and Versailles. The region was thrown into turmoil with the execution of Louis XVI in 1793 and the withdrawal of the Church from France. When the Church sold off its land to peasants as its members fled, the nobility saw right to do the same.

To understand the development of wine as an asset class it is also worth remembering that investing in wine has always been more to do with the enjoyment of continued consumption of quality than straight financial gain. The landed gentry would buy ten cases from a leading chateau, keep them for ten years, sell five and buy another ten with the profits. In this way, the family would constantly improve their cellar. This practice of ‘laying down’ and selling off continued well into the 1980s.

Thirty years ago, Bordeaux was not the mighty financial force it is today. Its winemakers lacked cash, the infrastructure found in the chateaux was old and, in many cases, broken. The sea change towards wine as an asset class came about primarily because the chateaux required funds for renovations. Viniculture relied heavily on signals from the weather and growers had none of the expertise that now allows them to protect their vineyards and produce very drinkable wine, even when they are regarded as poor vintages. Today the true value for money is to be found in these ‘off vintages’. The top chateaux hardly produce any poor wine these days so investing in the wines from 2002 or 2007 will yield not only some great drinking wines but, hopefully, profit as well.

A further reason for the development of the investable wine market has been the introduction of buying wine ‘en primeur’, the opportunity to buy wines still in barrel. This trend began in the 1970s, providing the chateaux with healthier cash flows and offered the consumer an opportunity to buy at a price that would increase considerably once the wines were bottled and available in the market. This process, whilst still in place, no longer offers investment benefits to the consumer. If anything it has been reversed and wines are often cheaper when available for delivery than when produced.

Why should this be? As the Bordelaise turned a financial corner and found new markets, they started to invest in upgrading their infrastructure and, more recently, in technology. Quality and prices quickly increased, especially for top vintages. There was a general belief that the chateaux could sell as much wine as they liked, due to popularity of consumption. This was, of course, wishful thinking and many ‘negociants’ in Bordeaux still have cellars crammed full of unsold wine.

The golden rule of wine investment is simple; buy a great wine with limited production, ensure that your investment is stored in a reputable bond and watch the price appreciate as others consume it and thus reduce the supply. Buying Bordeaux no longer affords us this luxury. Burgundy, however, is a different story. Production levels are considerably lower and the finest Grand Crus such as Romanée-Conti, Musigny, Richebourg and Clos Vougeot produce as little as 450 cases compared to over 25,000 cases of Chateau Latour each year. For some white wine in Burgundy, such as Montrachet, a single grower’s production can be as little as two barrels – just fifty cases for the global market!

We hope you will be lucky enough to secure something this special for your own cellar.

Buying wine as an investment: Our advice

  • Buy from a reputable merchant
  • Purchase Burgundy at opening offer prices. Prices vary considerably; opening offers are usually made around December and January for the most recently released vintage
  • Buy finest growers Grand Cru and Premier Cru wines from Burgundy
    • Domaine Romanée-Conti, Armand Rousseau, Domaine Leflaive, Domaine Dujac
    • Clos du Tart, Domaine Ponsot, Domaine des Lambrays
  • Store wines in bond
    • London City Bond, Octavian, Vinothèque