Fine wine investment market starts 2011 with strong performance

The fine wine market started 2011 with a strong monthly performance with positive returns in January while other stock markets have remained relatively weak, according to a new report.

The Liv-ex 100 rose by 2.9% and the Claret Chip by 3.4% and year on year, the indices are up 40.8% and 52.4% respectively.

Evidence is emerging that the market is in a new phase in terms of favoured brands. Lafite, in particular, has underperformed the other first growths for two months in a row, and at precisely the time when Chinese demand might have been expected to be high in advance of the New Year celebrations.

Lafite prices have risen, but only around 2.5% over the two months on average across a range of vintages. It is a welcome trend according to Andrew della Casa, director of The Wine Investment Fund as the concentration of Asian demand on this particular brand has distorted index returns over the last 18 months and led to a number of misleading stories about conditions in the wider market.

The spotlight in January was taken by Haut Brion and Mouton Rothschild, both increased by an astonishing average of around 9%. Some specific vintages rose by much more, notably 1995 and 1996. Mouton 1996 recorded a remarkable 32% increase in just one month. ‘Mouton is now emerging as the most likely candidate to be the next Lafite, no doubt at least in part due to shrewd marketing associated with the presentation of its bottles. However, over the last six months Haut Brion is the strongest performer of the five first growths,’ explained della Casa.

The Wine Investment Fund (TWIF) experts anticipated these trends. They rebalanced many of their portfolios to increase the proportions of Haut Brion and Mouton, and reduce the proportion of Lafite. TWIF’s performance in January was +6.53% net of all fees and expenses.

‘This is an extremely impressive result both in absolute terms and compared to the Liv-ex 100 index. TWIF maintains more balanced portfolios than is reflected in the composition of the Liv-ex indices, which have tended to be Lafite-heavy. As the broader market outperforms Lafite, so TWIF’s portfolios tend to benefit to a greater extent,’ said della Casa.

He expects that the shift to Haut Brion is likely to continue. ‘Looking across vintages, last month saw maturing, higher quality vintages from the 1990s finding buyers. Along with the shift in the favoured chateaux, this provides some evidence that either demand from traditional markets is now becoming more significant, or Asian palates are maturing, or both. The pattern is by no means clear cut, as some weaker vintages, particularly 1997 and 2001, continue to perform well,’ he added.

The auction market also returned with a bang in January. Three major sales in Hong Kong realised a combined US$25 million.
  TWIF has repeatedly stressed the importance of exchange rates, particularly between the renminbi and sterling, on the fine wine market, which remains predominantly a UK market. ‘A rising renminbi allows Chinese buyers to pay more in sterling terms without affecting the cost to themselves. In this context it is interesting that China last month confirmed that its policy was to allow a continued gradual strengthening of the renminbi. While the target currency for the increases will be USD, all other things being equal a similar effect would be seen in relation to GBP. With Chinese demand constituting a majority of the business of major wine merchants, this would only lead to further upwards pressure on prices,’ said della Casa.

Last month saw the China’s state owned agriculture and food company Cofco buy a minor Bordeaux property, Chateau de Viaud in Lalande de Pomerol. Although the property itself is relatively insignificant, this is perhaps an indicator of a wider long term cultural commitment to the region and to fine wine in general, he commented.
 
'With this backdrop we retain our central forecast of 21% growth in prices for 2011 as a whole. Given January’s results we think our upside or optimistic scenario of 30 to 40% is somewhat more likely than previously, and conversely that our pessimistic scenario of 0 to 5% is somewhat less likely,' added della Casa.