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Reading the Fine-Wine Tea Leaves

Reading the Fine-Wine Tea Leaves
© Wine-Searcher
Mike Veseth delves behind the headlines to assess the current state of the market.

As 2013 draws to a close, the fine-wine investment market has continued the gentle decline that began early in the year, dragged down by the continuing market disinterest in blue-chip Bordeaux wines.

Not that all the news was bad – far from it. There were some individual bright spots to be sure – 2004 Margaux traded at a five-month high of $4,740 at the end of November – and positive trends, such as the rising interest beyond the Haut-Médoc to Bordeaux's Right Bank, Burgundy, top Super-Tuscans, and Champagne.

But sometimes the good news had a bit of a dark edge, such as the announcement in October that the number of active markets on the Liv-ex trading platform had increased by 50 percent in four months. Great news! Alas, the increase was mainly due to a rise in the number of offers to sell rather than offers to buy. Good news for those of us who’d like to see a broader fine-wine investment market, but not great news for anyone hoping for higher prices.

The collapse of another fine-wine investment fund added to the somber mood in mid-November, when London Vines went into voluntary liquidation. It was reported that the fund had a deficit of 590,000 pounds ($960,000), not something that is likely to generate optimistic investor sentiments!

Missing market bulls

Should we be surprised that the bulls have not returned to the fine-wine market to push the general level of prices up? The fine-wine market is sometimes said to be fundamentally different from other types of investments, and for a time it seemed like the usual laws of economics just didn’t apply. But the reality is that if fine wine is truly an alternative investment class, then it must be at least indirectly affected by performance in other financial markets (those which it is an “alternative” to).

Equity markets, especially in advanced countries, have been on a tear in recent months. The Economist magazine reports that “mainstream” equity market indices in the U.S. and Japan, for example, have risen by more than 20 percent so far this year in dollar terms (Japan’s Nikkei 225 index has jumped by over 35 percent in terms of yen value).

With high returns available in markets like these, interest necessarily shifts away from all alternative investment markets to some extent and the Economist reports falling values for emerging equity markets. Gold is down by more than 20 percent. It's hard to be surprised that wine is down, too, when considered as an investment that must compete with soaring valuations in equity markets.

A Christie's auctioneer takes bids at the three-day November sale in Hong Kong
© Christie's | A Christie's auctioneer takes bids at the three-day November sale in Hong Kong

A perfect China storm

But many wine investors look to the particular drivers of this market rather than broad investment trends, and there is some logic to this because wine is a special investment arena, even if it isn’t totally immune from conventional influences. Many observers link China with the lack of greater vitality in the fine-wine market.

ProWein, the big German wine fair, opened its first Chinese satellite exhibition in November and the mood was apparently pretty gloomy. A perfect storm of unfavorable conditions were cited: disappointing Bordeaux en primeur sales, high existing stocks of fine wine, the Chinese government’s crackdown on profligate wine purchases and relatively slow Chinese economic growth. Still, 570 exhibitors from more 30 countries showed up to do business, because of China’s present influence and undoubted future potential.

Are things really as grim as the most pessimistic observers seem to think? Cautious optimism would describe my view for wine investment in 2014 – a long way from “irrational exuberance” but more positive than my view earlier in the year. I’ve been reading the Hong Kong auction tea leaves and, to mix my metaphors, I think I see a few green shoots.

Reading the Hong Kong auction tea leaves

Both Zachy’s and Christie’s organized big wine auctions in Hong Kong over the last week and both reported good news. Zachy’s one-day auction sold 97 percent of the 734 lots on offer, yielding in excess of 52 million Hong Kong dollars (roughly US$6.75 million) – a very good  result. Christie’s three-day sale boasted similar success, with a high proportion of lots finding buyers and a total sale of 69.9 million Hong Kong dollars (US$9 million).

These numbers are positive indicators for fine-wine investment, although it is important to keep them in context. Every auction is different and no one of them can capture all that’s going on in the broader market. Sometimes results can be skewed by a small number of special or unique sales.

Domaine de la Romanée-Conti provided headlines in both auctions: a case of 1969 Romanée Conti DRC – sold for 1.47 million Hong Kong dollars (US$189,613) at the Zachy’s event. A spectacular price, but not the biggest number in Hong Kong that week. The hammer went down for a case of the 1978 vintage of the same wine at Christie’s for an incredible 3.675 million Hong Kong dollars (US$476,000) – more than three times the pre-auction high estimate. A world record price for a case of wine, this purchase is equivalent to US$39,500 per bottle or $6,600 per glass.

L-R: Wines from the 105-bottle collection of Château Latour dating back to 1881; a new world record was set for 1978 DRC in November
© Christie's | L-R: Wines from the 105-bottle collection of Château Latour dating back to 1881; a new world record was set for 1978 DRC in November

Bordeaux also grabbed attention with some unique lots. A collection of 61 Mouton Rochschild magnums spanning the years from 1929 to 2009 sold for 1.7 million Hong Kong dollars (US$210,280) at Christie’s, for example, and a 105-bottle collection of Château Latour from 1881 to 2008 found a "private Asian buyer" at 2.3 million Hong Kong dollars (US$296,673).

Although it is fair to say that DRC and Burgundy stole the show at these auctions, along with the wine collections from Bordeaux, for me the big news was in the fine print rather than the headlines. As someone who has written about the desirability of a fine-wine investment market with more of a global scope, it was the success of auction lots outside of the Burgundy and Bordeaux icons that piqued my interest.

Simon Tam, head of wine at Christie’s China, explains: "We had some [strong bidding] on Grange, some Ridge Monte Bello, Vietti Barolo, and I think this is a sign of the continued and rapid development of the Hong Kong market."

Tam added: "When I first started back in 2011, the market was just Bordeaux, Bordeaux, Bordeaux. In a short time we are seeing, and selling very well, classic wines from Montalcino, Piedmont, wines from Spain – the great wines from Ribera del Duero."

He believes the Hong Kong market is certainly broadening. "I think from the signs we have had from the last couple of auctions, we will able be planning more classic names from other parts of the world," he reveals.

Whether the good news from these particular auction results will carry over to the broader fine wine investment market in 2014 is anyone’s guess and I am sure there are people with strong opinions both ways. Me? I’m seeing the glass as half full for now.

Related stories:

World-Record Price Raises DRC Ceiling

Wine Investment: The Wine Economist's Diagnosis

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