Comment: China To Launch First Wine Investment Fund - FT.com - 24th August 2011
By Thomas Gearing (Director) - Cult Wines Ltd - http://www.cultwinesltd.com

The FT ran a story yesterday about the impending launch of the first fine wine investment fund in mainland China. The Dinghong fund is looking to raise $156million with a closing date for September/October.

Read the full FT.com article here

For an annual market cap of around $5billion, the injection of this sum of money will no doubt have reverberations through the market and I would expect to see strong trading throughout Q4. In fact, looking at previous market drivers such as the Lafite Sotheby’s auction which was held in Hong King last October and moved prices for the top vintages of Lafite by some 15-40% almost overnight, this news may well spark renewed buying and interest from domestic markets who will be looking to take advantage.

Whatever the case, the news is welcome at a time when doubts had started to creep into some market commentators’ minds with regards to the long-term viability of the fine wine market as an investment asset class. With a lock-in period of 5 years and current fears of over subscription, the fund shows the clear and obvious demand of the mainland Chinese market and should provide wine collectors/investors with confidence.

An interesting note from the details released is the fund’s close relationship with Etablissements Jean-Pierre Moueix. This would indicate that a significant proportion of funds may well be focused on right bank wines such as Hosanna, La Fleur-Petrus, Trotanoy and of course Petrus. With recent reports of a greater shift from mainland China to the right bank wines, which to now have somewhat been neglected by this emerging market, there could be significant investment potential for collectors in these wines.

In a market driven by sharp demand/supply imbalances and more than ever on human reactions to market events (especially those on the other side of the world) it wouldn’t be unsurprising to see similar performance in Q4 that occurred in 2010. Last year the final quarter saw a huge turnaround in demand and prices after a somewhat flat Summer (post 2009 en primeur). Seasonality and cycles are evident in many markets – is this the emerging pattern for the fine wine market? If so, then those who are most savvy will make their play in the quieter summer months.

For those who feared that Lafite had run its course (as was mentioned in an Andy Xie’s article this time last year) I would predict that the Asian favourite may well be heavily involved in this investment fund’s composition. What affect this will have on prices I’m not sure, but with a few sharp prices available at the moment a few people will undoubtedly make a healthy profit.