For July as a whole, the main fine wine indices rose by 3.6% (Liv-ex 100) and 4.5% (Liv-ex Investables) which followed 2.1% (Liv-ex 100) and 2.2% (Liv-ex Investables) rises in June. Year to date Liv-ex is +12.9% and Liv-ex Investables +13.8%.
Some have pointed to the fluctuations in currency accounting for this, as sterling fell by around 1-2% against the US dollar, euro, Japanese yen and Chinese renminbi. However Andrew della Casa, founding director of TWIF, believes this hasn’t had a significant impact.
“Currency movements are not enough to explain the sharp increase in fine wine prices,” he said. “We have also seen a certain amount of speculative interest in fine wine on the back of what is clearly a rising market – something we’ve not seen since the bull market of 2009-10.
“A note of caution though: Liv-ex has reported that, despite the positive mood in the market, spreads have widened (normally, improving market conditions would be associated with tightening spreads) and has suggested that it is possible that sellers are raising offers faster than buyers are increasing bids, suggesting a degree of over-optimism.
“This is possible, but volumes being traded still appear high from our perspective.”
TWIF pointed out that investors looking for somewhere to allocate funds will have noticed that wine is at an advantageous point in its investment cycle. With long-run returns averaging around 10.5% per annum (based on the longest reliable index of fine wine prices, the Liv-ex Investables, since its inception in 1988) and the price declines from 2011 to 2014 having left the market well below its long-run trend level, there is now a steady return to the trend line.
Prices continue to firm significantly, partly because of the defensive properties of wine: as a physical asset, fine wine tends to perform well in periods of uncertainty; wine is historically much less volatile than equities, implying lower levels of market risk; and finally, it is also not linked to the prices of other assets in most circumstances.
Haut Brion and Chateau Margaux were the strongest performers in July. Haut Brion is attracting interest as the cheapest way to access the first-growth market. Margaux, meanwhile, was probably boosted by its 2015 being widely declared as the ‘wine of the vintage’ in the recent releases, and perhaps also by interest following the sad passing of its longstanding and popular managing director, Paul Pontallier.
Looking over a slightly longer time period, it is evident that the Chateau ‘Lafite premium’, which measures the extent to which Chateau Lafite prices exceed the average of the other four left-bank first growths, has stabilised and begun to increase.
This is significant because the Lafite premium has been an accurate indicator of trends in the market since the entry of China into the market in 2009. Having peaked at 117% in November 2010, the premium had fallen to 44% by February 2015. It then barely moved for a year, but since February 2016 has been slowly rising – reaching 49% in 2016.