What a shocker to see the UK exit from the Eurozone! Were you expecting that to happen? I thought the polls usually get it right, but not this time.
Since the news broke Friday morning, the pound plummeted from 1.5 down to 1.32, then it snapped back up to 1.36. The FTSE opened down 10% and so did the rest of the European stock markets. Crude followed down 5% and Gold rallied up 5% to 1320. I’ve pasted some charts below for you to see what happened on Friday. Having said that, it was not as bad as the media portrayed, the UK FTSE seemed to bounce back after trading and the US markets had an early rebound but then dropped towards the end of the session. It was certainly not a doomsday of carnage as some financial articles headlined.
Gold Spot Chart Friday 24.06.16 7pm Singapore time
GBP – USD Chart Friday 24.06.16 7pm Singapore time
Euro – USD Chart Friday 24.06.16 7pm Singapore time
What does it mean for the wine investment market?
Well, fine wine for suppliers and merchants who are in the UK, just got a lot more expensive so this will make their lives difficult buying in new stocks, since they are holding Pounds and buying new vintages in Euros. There is a huge amount of wine stock in the UK market sold in Pounds, I would expect demand for UK stock to increase, which will then further increase demand for wine in Euros, as the stock in pounds becomes scarce.
As a private investor, if you are holding US dollar or other currencies around the world, this means that wine just got much cheaper for you to buy in pounds or even in euro! In the short term, If you want to take the view that the weekend’s downturn in the currency will snap back up; then buying wine while the currencies are very low, are an opportune moment for you.
The issue of whether the Euro fixes its problems internally remains to be seen. I do not expect things to change from what we have seen already in the last 3 years. The UK is now free from its shackles and although the road may be a bumpy one for the interim period, at least they are no longer tied to an expensive membership in the Eurozone club.
The UK to the rest of the world, is seen as a strong and stable economy, proof being the foreign investments made into the UK over the last 15-20 years. Asian and Middle Eastern investors however could bail out of the UK if there are further shocks to the market. But overall, the UK market should work its economy and get back on track. I am expecting to see a big rebound in the pound over the long term.
In the medium term, I will continue to monitor both currencies and the wine market and make my recommendations as and when. We need to remain flexible when there is uncertainty, so that we can make the right moves at the right time. Make calculated decisions based on market activity, direction, price movements and the global picture. Of course as always, the price we pay for our wines is a key factor, I will continue to look for undervalued stocks of first growth wines to recommend.
The wine market has regained strength in the last six months and is in a relatively good position. Investment has been strong since wine is seen as a safer type of commodity since stock markets started crashing last year. Many vintages are still way below their highs of 2011, (although we have seen superb growth in the last 6 months) with bargains a plenty, we can’t call this market over bought or at its peak. We envisage another 2-3 years of growth.
Another reason we are likely to see continued growth in the wine market is due to the uncertainty in the global markets. Questions being asked like, how long will it take for the UK to make an exit? how will the UK economy perform without a prime minister? Will there be other countries bailing out of the Eurozone? And what impact will this have on the global economy?
Uncertainty is very good for the wine market, it brings investors who want protection. Again I re-iterate, the wine market has just gone through 4 years downturn and 1 year where it remained fairly flat. Given it was completely oversold 1 year ago, it is in a position of growth right now.
If you are only holding pounds, selling your wines right now is not a good idea because of the weakness in the pound, but investing your pounds into wine right now will hedge you against the currency trends. We can of course sell any of your wines in Euro if you wish, just make that request when you put any of your wines for sale.
In summary the wine market still remains a buying opportunity rather than a selling opportunity right now.