The Market That Keeps on Growing
Over the last few decades, fine wine investment has moved from an esoteric hobby of the extremely wealthy to the widely recognised vehicle for capital growth and portfolio diversification that it is today...
Currently, Liv-ex (www.liv-ex.com) the global market place for fine wine, is reaching record highs of exposure. The total value of bids and offers for wine on the exchange now sits at a total of £47.5 million - a £2.5 million increase from three weeks ago when a new record level was reached!
The bid to offer ratio (a vague indicator of market sentiment sits at just over 1.5 at the time of writing. This ratio is based on the value of bids (firms contracts to buy wine) versus the value of offers (firm contracts to sell wine) and historically, a bid to offer ratio over 0.5 or above has indicated a stable or growing market.
With this much demand on the table, will prices in the fine wine market continue the rally of the last 2 years?
Seeing as the Liv-ex 100 is still nearly 20% off its 2011 high of 365 points, and in the past, the market has always superseded its previous highs, it is very possible that prices could continue their rise.
10 years ago the highest level of exposure of the time was at £5 million, a far cry from today's growing market place..... So, what has bought about this market growth?
Demand from China since 2005 has grown exponentially along with their wealth - a private survey showed that the number of High Net Worth Individuals (Chinese with at least 10 million yuan ($1.47 million dollars) of investable assets) has increased by more than 9 times over the last decade!
In Hong Kong in 2006, import duty for fine wine was at 80%, it halved in 2007 and in February 2008 it was completely abolished. This opened up the floodgates and helped to fuel China's love for wine as shown in the 2013 documentary Red Obsession.
If China is a relatively young (maturing) market for fine wine, Old Europe and the USA have provided a stable market for the finest wines for centuries.
Appreciation for the great Bordeaux first growth, Chateau Haut Brion, can be dated back to 1663 in the diary of Samuel Pepys where it certainly made an impression.....
‘Off to the Exchange with Sir J Cutler and Mr Grant to the Royal Oak Tavern in Lumbard Street,’ Pepys’ famous dairy entry reads, ‘…and there drank a sort of French wine called Ho Bryan, that hath a good and most particular taste that I never met with.’
Even more notable is the time spent in Bordeaux by two American presidents, John Adams and Thomas Jefferson.
Jefferson is well documented in his love for Bordeaux, who, as part of his initial purchase, placed an order for 250 bottles of Lafite Rothschild!
More recently, the fine wine investment has piqued investors' interest due to the (relatively) stable long term returns on offer.
As of 2017, the Liv-ex investables index has a 25 year compound annual growth rate of 11% and offers a very low correlation to financial markets.
With global equity indexes hitting record highs and levels of uncertainty (Brexit, Trump, North Korea..... the list goes on!), investors have been looking for a safe place to put some money.
Consistent returns and portfolio diversification, what's not to like about investing in fine wine?
I hope that you have enjoyed this article! If you are interested to talk with a member of our team about how to get started in this market, click here to send an email or give us a call on 01622 672 314.
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