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January 17, 2013

January Market Report and Outlook for 2013

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Market Overview December 2012 represented a 6 month high for the Liv-ex 100 and Liv-50 with monthly increases of 1.3% and 1.8% respectively. We have seen increased interest from investors who have been biding their time before re-entering  First Growths and we have seen a 50% increase in demand from Asia, the increase almost exclusively for First Growths. This represents a small change in market direction with the Liv-100 (- 8.9%) and the liv-50 (-9.6%) suffering losses in 2012. Interestingly, the Liv-ex 500, which takes a broader market view including many wines outside Bordeaux (the conventional investment grade wine market), has seen only a -5.1% drop and has outperformed the indices when taken over 5 years, (see below).

New Market trends Collectors who have been purchasing Grand Cru Bordeaux outside of the First Growths and prestigious French wines from Burgundy (including its top white wines) and Rhone have seen excellent returns in 2012, while Bordeaux First growths have undergone a large correction. Burgundy in particular doubled its share of trade on the Liv-ex exchange.  It is noteworthy that the 2010 vintage in Burgundy saw halved production, as has 2011 and probably 2012. This trend in Burgundy is likely to continue among Grand Cru and Premier Cru vineyards. Growing global demand is pushing the limits of the decreasing annual production . The country outside France that has seen the biggest benefit is Italy, with wines of Tuscany (particularly Super Tuscans) and Piedmont (Barolo and Barbaresco) undergoing increasing global demand. This has proven our assertion that while First Growths are the flagship for wine investment and appreciate the fastest in a bull markets, collectors should balance their portfolios with other Bordeaux wines and wines from Burgundy, Rhone, Italy and even the New World.  This diversification also offers the ability to restructure the proportion of First Growths in the portfolio at opportune times to maximise growth.

Bordeaux Right Bank Bordeaux right bank, which has been the best performing Bordeaux sector this year (+5%), was given a further boost when Angelus and the often divisive Pavie were promoted to St Emilion Grand Cru Classé A, alongside Cheval Blanc and Ausone. This is a great sign for these two Chateaux, which are now extremely undervalued against their new peers.

Outlook for 2013 We predict continued growth from Top producer Burgundy, Rhone and Super-Tuscan wines. 2012 has meant many traditional Bordeaux focused buyers have begun to enjoy and learn more about other wines, we have also seen an increased demand from China. First Growth prices have almost returned to 2008 prices and in some cases to 2006 levels. The sentiment is that the global expansion and growth rate over the last 20 years has pushed global reserves. With an estimated one billion pounds worth of fine wine, particularly First growth having been shipped to Asia in the last 5 years, the European pool of wine is now comparatively small, when compared to the 90’s. As such, for the first time in 24 months, we think mature vintages (1990, 95, 96, 98) have now reached stable ground (with the exception of Lafite Rothschild), with post 2000 vintages promising a change of course. Since Mid-November the Lix-ex 50 has increased 4.5%.

The two factors that will define the growth of post 2000 vintages will be the 2012 En Primeur campaign; if it is well priced and attractive we believe we will return back to a bullish Bordeaux market. The second will be that China continues the recent buying experienced since November after their New Year is finished. Either of these two factors would result in a large return of investment in the market and stop Wine Fund redemptions, which have put selling pressure on newer vintages. The 2010 vintage becomes physical this year and Parker’s bottle re-scores will be released in March. His re-scores of the 2009 vintage saw several wines jump over 30% in price, however, with the exception of a few wines that may see a similar spike, (we will release a report on this in February), we believe 2010′s remain a risky position and overall a badly managed and over-priced campaign. Liv-ex reported that the five-year compound average returns (CAGR) of the Liv-ex Investibles have continued to increase for 5 months in a row, after a 4% low in July.The summation being that the fine wine market moves in 10 year cycles, with the previous low points being 1992 and 2002 and therefore the market is situated to start a new cycle.