Market volumes since June have fallen with Liv-ex, the merchant to merchant exchange, reporting a 15% drop. This is a typical summer trend following an en Primeur campaign that gained only partial traction. However, this is an increase on this time last year, with Liv-ex reporting that volumes are 47% up on 2011. The Liv-ex 100 is still showing 5% growth year-to-date.
Cyclical buying analysis suggests that volumes of Bordeaux First Growth increases in late August and early September in anticipation of the Chinese Mid-Autumn festival and particularly in January, before the Chinese New Year; in 2014 this falls on the 31st January. Outside Bordeaux, purchasing of Champagne, Rhone and Italian wines continue to rise, while Burgundy buying endures gaining market share despite its limited production. This would suggest a continued reliance on Asia for First Growths and increased interest in the best of the rest from Bordeaux and other leading regions within Europe; with so much quality outside the First Growths, we expect this tendency is here to stay.
Noteworthy is the new Presidency in China (elected 14th of March 2013), President Xi Jinping has been championing stricter controls on governmental expenses, resulting in an interest in lower priced top wines for wining and dining. Buyers are now looking for better value for money, reducing food and wine sales in the highest-end products, such as Abalone and Shark Fin soup etc… We have seen a reduction in interest for wines from £4,000–£8,000 a case and increased interest in cases £1,200-£2,400 a case, or £100-£200 bottle price.
Fine wine market continues to broaden
IG Wines have been championing Super-Tuscans for investment for the last two years, in particular Sassicaia. The Liv-ex Super-Tuscan index has returned 90% over the last five years, vastly outperforming the Liv-ex 50. Out of the five strongest brands Masseto has lead the pack with 110% growth, while (as Liv-ex reported) Sassicaia lagged behind its peers returning 7% until August 2009, since which time it has seen a 40% increase for the last ten vintages.
In terms of investment in wine the trend seems facile, buy wines that are substitute brands. The market naturally turns to these as the global market realises the quality outside of the First Growths. Indeed, the price rise with Super Tuscans (although they are still well priced) means that wines like Brunello di Montalcino are looking very attractive, as are the well-priced Grand Crus of Bordeaux, Rhone, Spain and up and coming producers from Burgundy.
Wine funds traditionally have focused on the most liquid wines available, investing over 85% in First Growths, due to their higher value and traditional performance. This year two funds have suffered problems, although quite different in nature. The Vintage Wine fund was wound up at the end of June, a fund that held as much as €110m at its peak in 2008. The fund has been reducing its holdings for some time now, creating further downward pressure on First Growths.
Noble Crus wine fund, the largest in the world, holding as much as €109m in May temporarily suspended investors withdrawing money after a spate of problems pertaining to valuation. It came under fire for not using Liv-ex as a benchmark for valuation, instead relying heavily on auction prices, an ill-fated and ill-advised decision given the frictional costs of trading wine in auction. It is noteworthy that Noble Crus have focused heavily on First Growths, but unlike most funds, it diverged outside into Domaine de la Romanee Conti. This coupled with the slowdown in Asia goes a long way to explain the performance of First Growths in general.
The question of valuation is important, fine wine performed extremely well when the market was more opaque and the increased level of attempted maturity driven by wine funds succeeded in creating more correlation between their most traded stock (First Growths) and traditional markets. Indeed, it has been the wines outside of these hallowed clarets that have performed well in the last two years. We do not believe wine funds are particularly suitable for retail investors and that the market should naturally continue to broaden. As a result we have begun to use a function of Liv-ex prices and wine-searcher lowest bottle price to draw the most accurate market data for valuations. After all the latter shows the lowest price retail buyers would pay for a wine to drink, which ultimately is the point of fine wine, something many people in the market have sadly ignored.
Wines to sell
Post 2000 vintages of Cheval Blanc are thinly traded and supported by its relative value to other leading wines. We do not believe the newer vintages have sufficient global consumption demand to push prices up for several years, although vintages such as 1998 look undervalued when compared to its quality. With Angelus and Pavie being promoted to the same status Saint Emilion Grand Cru Classe A the market is not currently viewing its newer vintages as strong buys.
We continue to advocate the leading wines outside of the First Growths, which have performed well over the last two years. We believe that post 2000 vintages of First Growths above £6,000 a case will continue to be flat, or subject to micro bubbles, with the global market focusing on value around £1,000 to £2,500 a case. Portfolios should be balanced across Bordeaux, Burgundy, Italy and the best from the rest of the world will continue to perform well. Moreover, Bordeaux wines scoring 98 points plus from 2009 and 2010 will become legends particularly those under £2,500 a case, which makes them incredible value when compared together 100 point wines from older vintages.