June 2014 Wine Investment Report
I hope you have been enjoying the World Cup.
Here is my latest market update on fine wine investment.
Before I start, I have some good news, we had more success with our last Champagne recommendation. We recommended Dom Perignon Rose Vintage 2002 @ 2200 pounds/case around 6 weeks ago. Our current bid price is 2340/Case which is just over 6% higher than what we recommended it at. Well done if you were successful in adding that to your portfolio. I am hoping for some good appreciation over the next few years with Dom Perignon as it remains a strong and steady Champagne investment for the future.
Now onto the ups and downs of the fine wine market:
The University of Cambridge did some Research into wine investment and they found that lower rated vintages made a good return even though they were not blockbuster rated by the critics. They reported that the lower rated vintages took longer to appreciate than those with higher critic ratings. Blockbusters are usually determined between 98-100 points. Opportunities to make a decent return in a lower rated vintage presents openings for investors with less capital to build a wine portfolio. Perhaps a good way for new investors to start small and add another string to their bow. There was also a study from Barclays bank in 2012 and they found that a quarter of the people they identified as ‘high net worth’ individuals had a wine collection which represented at least 2% of their wealth. Wine investment is now becoming an integral part of many high net worth investors portfolios.
A wine trading platform called Cavex in the UK reported that Bordeaux First Growths were responsible for 85% of value traded in the last few weeks. They are suggesting the market is appearing bearish. Despite not seeing any increase in prices we are also optimistic that the Bordeaux market is on the road to recovery.
The recent news from the European Central Bank lowering interest rates below zero became part of headlines in the news this month – The lending rate was cut to 0.15% and the deposit rate was cut to -0.1% (Minus). If the banks decide to pass on the cost of keeping money in the bank to customers it means they will charge customers to keep money in the bank. If banks don’t pass this cost on to customers then they should be more obliged to loan more money out to their customers as opposed to keeping it on their balance sheet which will cost them money. Either way the intention is to have more money flow freely across Europe suggest the ECB.
A lot of European wine investors left the wine market in 2008 when prices escalated out of their price range but the reality was that many couldn’t afford to invest due to pressure from the recession. If there is more free money in Europe and less of an incentive to keep cash in the bank then its likely investors will pour money into hard assets such as wine because companies and individuals will need to put their capital into something stable. Some critics are saying the stock market is over heated again. I do not see it crashing but it is rising rapidly and could be heading for a slight correction if it continues at the pace it is going.
Given the Bordeaux wine market has dropped so much over the past few years it does look like it’s at the bottom with a very strong possibility it will increase soon. If there is an increase from European wine investors in Bordeaux wines it will definitely start to recover. Confidence will be back in no time. I can not help thinking the Bordeaux prices are very low right now and there’s a strong chance to make some good returns over the next few years with the right wine investment. But tread cautiously because venturing into the market at the right time is key.
If the decision to lower interest rates by the ECB is successful and Europe’s market improves then Europe may be the boost that the Bordeaux market needs. After a long drawn out recession in Europe the economy’s outlook seems positive. There is hope among critics that things are looking up for Europe compared to 2 years ago.
In terms of activity in the wine market. We are receiving more than the usual amount of requests from merchants asking to buy our wines. This is also signs of market sentiment improving. Wine Investors have been watching the Bordeaux market for signs of a recovery and let’s face it the market has been down for two years now. Nevertheless as we see the market improving investors will rally and prices increase.
We still have our eyes on parcels of wine from Rhone Valley or Champagne but that could turn at any point if the activity improves in the Bordeaux market. You may want to consider moving into a liquid position so that you can be in a position to move on some of our upcoming recommendations.
Feel free to email me if you have any questions or comments.