Why are Fine Wine Prices Going Up?
James Pala – MD – Sure Holdings Ltd
Why are Fine Wine Prices Going Up?
There is turmoil in the global stock markets, each day of trading for 2016 has pretty much seen losses across the global markets. It all started with China’s circuit breakers kicking in within the first few days of stock market trading. As the market dropped 5%, the circuit breakers would halt the market for 15 minutes. If the markets fell to 7% then the circuit breakers stop trading for the rest of the day. As always, the Chinese government are quick to react after the circuit breakers kicked in several times over the course of the first week and they decided to stop using them. This reduced the losses but it didnt stop the volatility, with Chinese markets dropping consistently between 2-3% nearly every day.
This volatility led to Europe taking hits and then the US markets generally follow as their trading days begin later. One of the main problems with this current sell off is that oil prices continue to fall. Since the new year, Oil has fallen below 30 dollars a barrel. As the pressures increase in China, it increases doubt on whether the oil glut will reduce. Now Iran come onto the market after this weekend with potentially another 800,000 barrels/day. Saudi Arabia have made it clear they will not slow down pumping oil either which will add to the glut. There is also an issue that so many oil companies in the USA took advantage of the zero interest rates to drill and their debt could become an issue if they can not repay those debts. Especially as interest rates are now on the rise again in the USA.
It all sounds rather gloomy doesn’t it. Do not despair, it is not the end of the world. Lets talk about a commodity that is short on supply. The wine market has been going on its own course in a completely different direction. After four years of downturn, it has finally had a decent year in 2015. Yes, the market overall has not had a major increase, though quite a number of vintages appreciated in excess of 15% in the last 12 months. (Refer to my charts which I’ve been sending you the past month.) For various reasons, Robert Parker was handing out some 100 point rating awards to various wines like Haut Brion and Chateau Mouton Rothschild in 2015, which sky rocket the wines price every time Parker rates higher. Coupled with supplies around the world were down and merchants needed to restock as they gain confidence back in the high end market.
So, December was a good month for wine prices, we clearly saw an excellent increase on a higher percentage of wines versus those that remained the same or dropped in price. As reported by the London wine exchange, there was an increase of activity in December which has followed through into January.
If you have been following, you will know that I have not recommended many wines in 2015, partly because I was concerned about prices not recovering quickly enough and also concerns that we would see another dip in the market if the Chateaux were unable to offer reasonable prices during En primeur. I am kicking myself now for not buying AND not recommending more wine to you in 2015, but in hindsight its always better to play safe. Luckily prices are still considerably lower than they were in 2008 and 2011 so while prices are still undervalued it makes sense to enter now. If ever there was a more sensible time to buy wine it is surely now. For a market that is coming out of a 4 year downturn, the 5th year it’s now on the rise with an ever decreasing stock market and potentially a global crisis on the way (If we are not already in one) it is the best time to invest into wine. Even during global recession and stock market down trends there are still a lot of wealthy people on our planet partial to the best claret in the world.
There are new players in the fine wine market that were not necessarily active before because what the bubble from Chinese speculation did was, it created a lot more attention to the fine wine industry and therefore fine wine drinkers and investors around the globe are more, than there ever were before.
My plan is to have more than one recommendation per month this first half of the year at least – If I can find the right deals to recommend and enough stock to offer. So please watch this space, if you are not registered to receive recommendations then please register HERE so that we know to contact you.
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