Market Report January 2011 -
18th January 2011
By Thomas Gearing - Cult Wines Ltd -
Market Review 2010
The Fine Wine Market saw in the New Year in some
style, with the benchmark index Liv-ex Fine Wine 100
having gained 40.5% in 2010. Whilst, the Liv-ex Fine
Wine 50 Index rose by 57%, far outperforming other
asset classes across the same period (S&P 500 index
up 13% and Gold prices up 31%).
Fine Wine prices put in a substantial increase in
2010 and can in part be attributed to China’s ever
increasing taste for the Top Bordeaux. Hong Kong’s
status as the fine-wine capital of the world was
reaffirmed, with the city selling more fine wine at
auction than those in London and New York combined.
The highlight of which being, Lafite’s first
ex-Chateaux auction in late October which saw many
cases trading at 2 and half times that of UK market
large spike in prices for Mouton and Lafite 2008 can
be attributed to an increase in demand following the
announcement concerning the Chinese artist designing
the Mouton Label, and the Chinese figure eight
featuring on the Lafite label.
Market Outlook 2011
With Chinese New Year fast approaching (3rd
February-year of the rabbit), the focus for Q1 will
be on older vintages that are ready to drink.
China’s taste for Bordeaux-particularly wines from
the Left Bank should be re-affirmed. Older First
Growth vintages will be in high demand along with
wines such as Lynch Bages, Duhart Milon and Cos
Typically, rapid rising prices across the past
12months have led to anxiety that the top end of the
market may be approaching a ‘bubble’. Whilst, I do
not anticipate the returns of 100% + that we have
witnessed for some wines in 2010, I would
conservatively project returns of around 25-30% for
the coming year. The re-emergence of the U.S. market
will further add to the strain on supply of the Top
Bordeaux Chateaux. With the continuing economic
development of the BRIC countries it is only natural
that we are witnessing a new influx of consumers for
luxury goods such as Fine Wine.
Obviously, the returns of the 2008 vintage were
never going to be replicated but I think a sense of
realism has swept the market and people have
re-adjusted their expectations rightfully. Returns
of 20%+ per annum tax free are not only achievable
in the long term but desirable by the investor. I
would advise investors not to look to fine wine for
a ‘quick buck’, instead view the market as a 3-5
year opportunity. The market fundamentals are very
strong and will produce good capital appreciation
across a medium/long term hold.
Picks for 2011
Low Capital Investment Wines
The growing importance of Lynch Bages in the
Far East was highlighted by the volumes sold in
2010. The volume case (12x75cl) sales for Lynch
Bages 2009 and 2007 were 393 and 375 respectively.
This compared to Lafite Rothschild 2006 selling 665
cases – the most sought after wine in volume terms.
We will continue to see Lynch Bages trade keenly
across Q1, with the physical vintages being picked
up for next month’s Chinese New Year.
Lynch Bages is particularly popular in Hong Kong, as
in Chinese, it is called ‘Lan Chi Pat’, the name of
a famous 20th century Cantonese opera singer. Lynch
Bages owner Jean- Michel Cazes, a frequent visitor
to the Far East, observes that "It is very important
for a brand in China that the name be positive and
also well-respected". Well fortunately enough for
Jean-Michel, Lynch Bages is beginning to cement its
place as one of the most popular Left Bank wines
amongst Far Eastern consumers.
Recent months have seen many of the low capital
wines outperforming their First Growth counterparts,
such as Pavillon Rouge and Forts de Latour.
The uptake has been strong with these wines in
excessive demand for consumption in the Asian market
and with ‘blanket’ prices across the sought after
physical vintages, I would recommend Lynch Bages
2005 and 2007 and if you are looking at a 3-5 year
window for investment- the 2008 and 2009 vintages.
Beychevelle has been singled out for growth
potential, having picked up notoriety because the
label features a Chinese dragon boat – a hugely
important symbol in Chinese culture and crucially
considered lucky (see below).
table below shows how this shift in emphasis has
seen the top of the performance charts dominated by
‘low capital’ wines. Price appreciation has been
considerably over 100% for the past 12 months for
the recent vintages of the second wines of the First
Growths. Any discerning investor must include these
stocks in a diversified portfolio to reap the best
returns whilst buffering against volatility of any
the table shows, both Beychevelle and Lynch Bages
are showing early signs of growth potential in a
similar to fashion to the likes of Pavillon Rouge,
Carruades and Forts de Latour. Duhart Milon still
offers value and growth whilst increasing interest
in Haut Brion should see Bahans stock benefit.
ratio between off prime and prime vintages – shows
the price discrepancy between the top vintages of
each chateau against the lesser vintages. In the
displayed graphs we have looked at the physical
vintages since 2000.
We have rated the 2000, 2003 and 2005 vintages as
Prime. The 2001, 2002, 2004, 2006 and 2007
vintages are Off Prime.
Over the last 24 months, the price ratio between
prime and off prime vintages has narrowed. The pace
at which the gap has narrowed has accelerated, with
a 20 point shift in the first 10 months of 2010
compared to just a 10 point shift in 2009.
This trend has resulted from the buying patterns of
the new emerging wine market of mainland China, Hong
Kong and the rest of the Far East. Bordeaux Fine
Wine is seen as a brand such as Rolex, Cartier or
Louis Vuitton – where the quality and singular
points difference in vintages aren’t as important as
Whilst we don’t expect to see ‘blanket prices’ for
the first growths – a trend which can be seen in the
second wines – we expect the price ratio to decrease
another 20-30 points over the next 12 months. The
data therefore shows that there is value in
purchasing both off-prime vintages of Latour
and Margaux – as these two Chateaux currently
show the greatest discrepancy in price of 156.3 and
153.2. Whilst with Mouton at 77.3 – there is
more value in the PRIME vintages.
Unsurprisingly Lafite Rothschild continues to
lead the other first growths in terms of
performance, with the number one fine wine in Asia
close to showing a 75% appreciation in prices across
the physical vintages. The trend for buying
off-prime vintages was certainly seen first in
buying patterns for Lafite and with Lafite 2006 one
of the most traded wines of last year. The 2009
vintage, despite its high release price has shown a
positive return for those who purchased at first
opportunity, so there will no doubt be just as much
interest in the 2010 vintage which is shaping up to
be another fantastic year.
There is little surprise that Haut Brion
carries up the rear, but the ‘unfavoured’ first
growth is certainly closing the gap and showed solid
returns of 25% for 2010. It is believed that Haut
Brion is second only to Lafite in terms of unit
sales in Hong Kong, which will no doubt put stress
on already overworked supply – which will no doubt
manifest itself in higher prices.
Since the quality of Haut Brion is unquestioned, it
seems only a matter of time before the gap in
performance is closed. We recommend the 1990 and
1998 which are both entering a period of optimum
drinking—at which point demand rises and supply
falls. The 2003 vintage also looks particularly
undervalued considering the quality of the year and
its RPJ score of 95 pts.
2010 En Primeur
Philip Gearing (Director) and Thomas Gearing
(Director) were lucky to be out in Bordeaux during
the harvest – and there is no doubt the conditions
throughout 2010 will produce a fantastic vintage.
The grapes were smaller than usual – however decent
rainfall in late September and early October
provided a last minute boost to the harvest. I would
tentatively suggest that this vintage will be
similar to 2003 – in terms of highly concentrated
wines – but I feel the weather conditions were not
as harsh this year as they were in the summer of
2003, so a vintage that falls between the 2003 and
2005 would be a fair assessment at this stage.
No matter how you look at it, 2010 will be
considered another very good vintage if not great.
The last three years bear a striking resemblance to
the trilogy of vintages in the late ‘80’s: 1988,
1989 and 1990. Once again, demand for these wines
during en primeur season will be high – but whilst
prices are high there is always value to be found
but they are certainly harder to identify!
Once again, we shall be fighting tooth and nail for
strong allocations of this year’s vintage – and will
be open for wish list applications upon return from
the tastings in early March.
Response to IMF report
Click here to read the IMF Report
Having had the opportunity to look over the IMF’s
report comparing the Fine Wine and Oil markets, I
think that there are some merits to the assertion
that there is a correlation between fine wine and
oil, and an increasingly close correlation of both
of these "asset classes" to emerging market GDP
growth. However, I think their claim that there is a
90% correlation is far too strong. Indeed, there
have been many comparisons drawn between the
behaviour of Gold and Wine in the past, and if you
base wine as a value of gold - then fine wine shows
itself as a store of value (Liv-ex research). During
the recent recession Gold and Wine have shown
remarkably similar recession-proof traits.
Also, it didn't need a 19 page IMF report to tell us
that fine wine had a correlation to increasing GDP.
As a highly desirable luxury good - wine will
attract itself to increasing wealth and always has
done. The fact is that the first growths of Bordeaux
have long been a barometer of world power. From the
eighteenth century they were bought by English
aristocrats, and then by the nouveau riche of the
Industrial Revolution. Currently, as world economic
power shifts (China has 800,000 millionaires) the
market for fine wine has followed.