Summary
- Fine wine prices were down on average 15%-18% across the board in the 2nd half of 2011
- As the European debt crisis unfolded, many collectors have been selling their collections to cover losses in other asset classes
- Demand from emerging markets in Asia, especially China, continues to grow
- Market downturn is showing signs of stabilization as bargain stock is getting snapped up in Asia
- Sources have already confirmed that the 2011 vintage of Bordeaux wines will not be as great as the exceptional 2009 and 2010 vintages
- The only two previous bear markets for fine wine in the last 25 years were 1998 and 2008, both of which saw the market hit a low point in December and recover steadily within 6 months
- On a medium to long-term view the market outlook for fine wines remains positive, given fine wine prices have increased 63% in the last 5 years compared to the FTSE 100 which is down 9% and the HSI which is down 4% over the same period
Market Overview: 2011 Q3 & Q4
With the European debt crisis unfolding and the global equity market taking a hit, we have seen a significant weakening of fine wine prices by an average of 15%-18% from July last year as numerous European collectors sold their wine collections in exchange for cash in the midst of the uncertainties in Europe. This weakening of the wine market came after a period of sustained growth of up to 76% since the end of 2008.
Notably, the most highly traded First Growths, Lafite and Mouton, have undergone a rather significant price correction of an average of 18 -25% across multiple vintages from the last decade. Super Seconds, such as Leoville-Las Cases, Pichon Lalande and Montrose, have undergone a price pull-back of about 10-13% on average over the last 6 months. This also applies to the 2010 En Primeur prices.
As for Asia, especially in Hong Kong and China, investors have been cautious in purchasing more Lafite and prized labels. In the Sotheby’s auction in October 2011 many investors were able to find the same wines at better prices from alternative sources. In addition, Chinese consumers have started broadening their appetite towards top Burgundies like the very rare DRCs as well as Super Seconds, which seem to be a better value for money.
2012 and into the Future: Outlook Positive
As these below-market priced top growth wines are gradually getting into the hands of Chinese consumers (who are buying these wines for personal consumption and gift giving), and also hungry investors in Hong Kong who have been snapping up great deals, we expect to see a slow-down in the price correction.
Regarding the Bordeaux First Growths, the correction is good news for potential investors, sophisticated drinkers, and collectors. Having been put off by the high prices back when the en primeur 2010 were released, long-time collectors are now getting re-involved. An additional factor is that due to unstable weather conditions, the 2011 En Primeur will not be close to the quality-level of the exceptional 2009 and 2010 vintages.
For the Super Seconds and great labels that fall outside the 1855 Classification that are highly recognized for their superior quality and ageing potential, the price correction offers comfort to those investors and drinkers who have been avid supporters of these lesser-known brands of amazing value.
Lastly, the historical performance shows the only two bear markets for wines have been 1998 and 2008, both of which had seen a relatively quick recovery within 6-8 months after hitting their lowest points. Wine prices over the past five years have increased by 63%, outstripping both the FTSE 100 index and Hang Seng Index in Hong Kong which were both down 9% and 4 % respectively over the same period.
Based on a medium to long term view, the future looks promising for investment wines, and right now is a great time to start revisiting and getting involved in the market to take advantage of these low prices and a weakened Euro.
