Fine wine growth continues

Fine wine growth continued in May with the main indices rising by 0.4% (Liv-ex 100) and +0.5% (Liv-ex Investables) says Andrew della Casa, founding director of The Wine Investment Fund (TWIF).

Fine wine growth continues

The fine wine market was helped by a drop in sterling during the month. The pound fell by 1% against the US dollar and by slightly more against the euro, yen and renminbi.

Within the wine market, the major focus over the past month has been the en primeur release of the new Bordeaux vintage, the 2016s. Virtually all wines have now been offered and, looking at the euro-based château release prices, most have seen sharp price increases compared to the (equally lauded) 2015s. These price rises have then been exaggerated further once converted to sterling, thanks to the 12% fall in the pound since last year.

Fifteen to twenty of the most sought-after names have sold well. These chateaux have tended to release small quantities, keeping back the bulk of their production for later sale. This has enabled merchants to put “sold out” signs on these wines and to discuss allocating only to favoured clients – both of which are useful strategies for driving further demand.

Pricing

The low release quantities make the situation rather artificial, though. There are also plenty of wines where the prices are too high, particularly in sterling terms, leading to criticisms from some in the UK trade. The view of The Wine Investment Fund (TWIF) is that from a global perspective (i.e. including non-sterling buyers) prices have, on the whole, been quite well judged: where châteaux needed or wanted to sell stock, they have done so.

As ever, TWIF will not be buying the en primeurs as our analysis shows that more mature wines are likely to provide greater returns, with lower risk, over the next 2-3 years. TWIF does, however, consider whether the primeurs have an effect on the wider market: during successful en primeur campaigns the wider market can be pulled upwards, while in poor ones it can fall.

Overall, this year is somewhere in between. Value in some back vintages has been highlighted and Bordeaux has taken centre stage for two months; this has driven some sales but the effect has not been large enough to affect prices.

Billionaires

Forbes magazine published its annual survey of global billionaires, showing that there were more than 2,000 people in this wealth category for the first time ever. Historically there has been quite a close link between the Forbes data and the wine indices, as the graph shows.

 

Wine graph

This could be coincidental, but it does make some sense as the finest wines may today be considered luxury brands, bought and consumed by the world’s wealthiest. The trend of increasing wealth at the top end is therefore encouraging.

Otherwise the market background remains healthy. Demand is robust and supply for the more mature vintages in which TWIF deals is still constrained. Following the primeurs there may be a final flurry of activity before the usually quiet July and August.

Overall, in the absence of significant exchange rate movements, TWIF expects a trend of steadily increasing prices over the remainder of 2017.

 

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