By Rodney Birrell, Founding Director of The Wine Investment Fund
The fine wine market ended 2017 in positive territory for the third consecutive year with the Liv-ex 100 index, the industry leading benchmark, closing +5.66% and the Liv-ex Investables index gaining a similar 5.68%. It was also a year of records on Liv-ex, the fine wine exchange. Market exposure, the value of all live bids and offers, reached £48m and the bid-to-offer ratio remained above 1 throughout the year; for Bordeaux wines the ratio now stands at 1.8 with almost twice as much value on the buy-side (a bid:offer ratio of 0.5 or higher has historically indicated an upward trend in the market or at least acted as a signal for price stability). Trade on Liv-ex also broadened in 2017 with over 8000 active markets and more merchants than ever before trading on the exchange. The returning demand of traditional markets such as the USA and Asia has continued to be driven by weakness of GBP Sterling relative to the US Dollar and Euro (important because the secondary market for investment grade wines is GBP denominated) and the ever-growing demand for the world’s best wines. UK merchant BI Wines and Spirits “have seen a continued increase in volume sales of physical vintages, especially of Bordeaux, particularly to Asia” in 2017.
Increased attendance (up 2.3% on 2016) at the 2017 Hong Kong International Wine & Spirits Fair and the newly introduced preferential measures for wine imports from Hong Kong into mainland China (an increase in the number of ports available, expediting clearance improvements and developments in the accounting of duty, recognising the growth in wine imports to China) are positive signs of stable demand in the Far-East. In addition, the European Union and Japan have reached agreement on a free-trade deal which will eliminate tariffs on imports of EU goods, including wine, to Japan. The country is already one of the top 5 markets for EU wine in general and Bordeaux in particular and any increase in demand could have significant positive effects on prices. Demand from the Far-East has not just been for the purchase of fine wines, but also for the purchase of chateaux, with over 100 properties in Bordeaux now under Asian ownership, suggesting a continuing commitment to the region.
Results from the main auction houses throughout 2017 (Sotheby’s, Christie’s and Bonham’s) have repeatedly been above the high estimates and global demand has been a prominent feature: the Sotheby’s (sales of $64m in 2017) sale in New York in December reported strong bidding from North American (50% of sales) and Asian buyers (45%) and First Growth Bordeaux were sold at 20% over the high estimate. Luxury goods group LVMH (owners of chateaux Cheval Blanc and d’Yquem) reported growth in revenue and profits in its Wines & Spirits division, including “very strong” sales in the US and China. This suggests that demand for the most prestigious drinks brands continues to grow amongst the world’s wealthiest. These are also strong indicators of traditional collectors having returned to the market in 2017.
The Knight Frank Luxury Investment index, which tracks the price growth in the major categories of collectables found that wine has replaced cars as the top collectables, thanks to the performance of French wines. Compiled by Wine Owners, a business and collector trading platform, it reported “Wine’s performance was driven by exceptionally strong growth in key areas across the world and in particular the resurgence of the top Bordeaux chateaux, which form the backbone of most investment cellars”.
Despite a successful en-primeur (the top 20 merchants sold approximately £85m – up 46% on 2016 – with US wine merchant JJ Buckley reporting their largest ever campaign), Bordeaux producers have continually been reported to be holding back the majority of production and tightened supply of new vintages. For example, the 2016 vintage was larger in volume than 2015, but only a similar number of cases have ended up in the UK. This has driven demand across a range of physical vintages. Paul Pong of Hong Kong based merchant Altaya Wines found difficulties sourcing volume and believes “chateaux are releasing little to no supply for their first tranche”. The tightening of supply and rejuvenated demand emphasises the markets low volatility and we believe this will continue to put upward pressure on pricing. Optimism surrounding the 2015/16 vintages and a broadening market make it an attractive time to invest in fine wine and it offers an important opportunity to diversify into an asset-backed market and a hedge against returning inflation.
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