Fine wine prices rise despite volatile markets

Fine wine can help diversify a wider investment portfolio and provide some stability in uncertain times, says Andrew della Casa, founding director of The Wine Investment Fund. Here he explains how.

Fine wine prices rise despite volatile markets

August saw a return to the steady upward trend in fine wine prices of the last 12 months.  This stability comes against a backdrop of dramatic swings in other markets and re-emphasises the low correlation between returns on wine and those of other assets.  The FTSE 100 was down 7% on the month (having at one point fallen 14% from its end-July level), the Shanghai SSE index was 12.5% down (at one point, -20%) and oil 10% down (at one point, -22%).

Can fine wine prices shrug off the travails of the world economy and China in particular? 

The answer is yes.  China’s austerity drive is now more than three years old and the froth from that market has disappeared.  Global sales of fine wine are no longer as skewed to Asia as they were.

A report from Wine Intelligence found that the USA was now the most attractive wine market, followed by Germany, Japan and the UK, with China slipping to sixth place.  Notably, economic growth in the US is relatively strong (+3.7% on the latest figures), while Germany and the UK are performing better than most of the rest of Europe.  Moreover, returning to China, the demand that remains from there now is, to a much greater extent, from genuine enthusiasts and drinkers and is therefore more stable.

Is fine wine is a better investment than gold?

Arguably fine wine, as a physical commodity with similar characteristics to gold, benefits from uncertain conditions elsewhere.  Gold, however, appears to be losing its lustre as a ‘safe haven’, having risen just 3% last month and actually fallen 6% in 2015 to date.  The effects of quantitative easing and continued low inflation and the possibility of interest rate increases in the near future do not favour commodities such as gold and wine which offer no dividend or interest payments.  Nevertheless, wine’s intrinsic value and inherently diminishing supply dynamic should mean that it retains its appeal in unstable market conditions.

Fine wine winners

During August Haut Brion was the strongest performer of the first growths, rising by around 1% on average across a range of vintages, while Lafite was fractionally the weakest.  There was no clear pattern between vintages: years as diverse as 2008, 2000 and 1990 all found favour.  The major auction houses took their summer break in August so there were no significant sales.

Outlook for fine wine prices

We are already seeing an upturn in activity as traders return to their desks in the first days of September and there is some buying ahead of the Chinese mid-autumn festival (in late September this year), although more restrained than in some previous years.

The last twelve months has been a period of consolidation after the trials of the 2011-2014 correction.  Prices have turned upwards, although more tentatively than we were expecting (+3.3% since the bottom of the market in July 2014), partly due to the difficult economic environment.

Nevertheless, the fundamentals of fine wine as an asset remain sound and we are therefore optimistic for the remaining months of 2015 and beyond.

The main indices rose by +0.1%% (Liv-ex 100) and +0.3% (Liv-ex Investables).

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