Fine wine maintains positive momentum

Fine wine continued its upward course in September with both main indices, the Liv-ex 100 and the Liv-ex Investables, rising by 1.6% says Andrew della Casa, founding director of The Wine Investment Fund (TWIF). Year to September performance on both main indices is now 18.0% and 18.9% respectively.

Fine wine maintains positive momentum

With the secondary market for Bordeaux fine wines (arguably the only wines that are truly investment grade) being largely a sterling denominated market, exchange rates were an important factor in September. Sterling fell against the main currencies by between 1.1% (against the US dollar) and 3.0% (against the Japanese yen) leading to further inflows of overseas cash into the sterling-priced wine market.

The UK stock market was also the best performing of all the main global markets in September, probably for the same reason.

Importantly, underlying market conditions remained vibrant with Liv-ex reporting a ratio of bids to offers of 1.6x, a further increase from the already high level recorded last month. The total volume of bids and offers is nearly 50% up on this time last year.

September’s strong results also come despite the Chinese mid-Autumn festival falling in the middle of the month. In recent years this has heralded a lull in the market, but not so this year – another indication of the resilience of the current market upswing.

Bidding was also strong at wine auctions across the globe in September. Sotheby’s achieved USD19.5m with sales in London, Hong Kong and New York, equivalent to a quarter of their sales for the whole of 2015.

Brexit

Sterling has continued its decline in the early days of October as speculation on the form of the UK’s exit from the EU continued. The deadline to trigger Article 50 now announced should provide relatively easy gains for wine prices in the shorter term.

Even stripping out the currency effect, however, there is sufficient underlying strength to withstand a reversal in currency movements – exactly as we saw in the spring of this year. So both the short-term and the longer-term outlook for fine wine prices is good.

Prices remain well below trend and, although the increases in 2016 appear sharp in sterling terms, they are smaller when viewed in dollar, euro or renminbi terms. A buyer in Japan (one of the top five buyers of Bordeaux worldwide), meanwhile, would actually have seen prices fall by 13% in the course of 2016. All this suggests that there is plenty of scope for the market upswing to continue.

Wines

Our own trading reflects similar encouraging trends. We’ve seen broad-based demand, including for wines such as Lafleur, Ausone and Yquem which have been out of favour for some time. We also noted a bias towards smaller than usual trades, suggesting healthy demand from final consumers (as opposed to restocking from the trade).

Bordeaux’s first growths had previously led the recovery, but September saw other wines in the spotlight. Pétrus and La Mission Haut Brion were the top performers, with average returns of over 3.5% across a basket of vintages. Left-bank wines from lower down Bordeaux’s classification, such as Léoville Barton and Lynch Bages, also outpaced the index.

Enter your e-mail address to receive updates straight to your inbox

Sign up to Investment Insights direct to your Inbox...

About Author