Evidence of fine wine market recovery

April provided evidence of the fine wine market’s recovery as the Liv-ex 100 rose by +1.1% and the Liv-ex Investables by 1.2%, says The Wine Investment Fund

Evidence of fine wine market recovery

This is the first time since early 2011 that the Liv-ex 100 has risen for five consecutive months, producing a 6% year-to-date return. Again, it was the Bordeaux indices which saw the largest monthly rises.

The positive returns came despite rises in sterling against the US dollar, the euro and the Chinese renminbi. A strengthening pound might be expected to depress prices (as wine priced in sterling becomes more expensive), so this is good evidence that underlying market conditions are much more positive.

A snapshot of the global market in 2015 was published by The International Organisation of Vine and Wine (OIV). It provided strong support for the re-emergence of Chinese wine buyers, with imports to the country growing by 44% (across all price levels: fine wine is not identified separately). Consumption in China also rose after two years of falls, although by much less (+3%), a combination which suggests re-stocking. Encouragingly, consumption in the USA, the world’s largest wine drinking nation, also rose slightly.

Meanwhile, all eyes are turning to the 2015 Bordeaux en primeur releases. The consensus from the tastings is of a mixed vintage – great wines from some châteaux, but lacking the consistency of 2000, 2005, 2009 and 2010. Prices are key, of course, and the early releases are in the region of 15-20% higher in euro terms than were the 2014s.

Translated into sterling, which has strengthened markedly over the past year, this means increases of around 30%; translated into dollars (bearing in mind the resurgent US market) it means rises of around 20%.

These increases appear high, especially as they are compared to the largely unsuccessful 2014 releases. Having predicted the failure of the previous four en primeur campaigns, it is tempting for The Wine Investment Fund (TWIF) to write this one off too. However, the inconsistency described might provide opportunities: if price rises are roughly uniform, châteaux which have produced genuinely outstanding wines might sell well.

The risk profile relative to the possible return continues to be too high for TWIF to invest in en primeurs (TWIF has never invested in en primeur) but there is now a greater probability of a fillip to the wider market which even a partially successful campaign would produce than TWIF previously thought.

“The UK referendum on EU membership provides short-term uncertainty, but generally we view the market as very positive: the indices are now pointing firmly in the right direction, underlying indicators are strong and there is at least a possibility of a boost to the market from the en primeurs,” said Andrew della Casa, founding director, TWIF.

“An investment in fine wine continues to make a very useful addition to a wider investment portfolio given that the fundamentals of fine wine as an asset remain sound and the fine wine market’s long run tendency to outperform more traditional asset classes remains unchanged, with considerably lower volatility.”

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