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August 2018 Investment Report

August 2018 Wine Market review

Softer Sterling breathes life into Bordeaux market but little evidence of momentum

Sterling’s fall against the Euro from €1.14 to €1.10 during the quarter from 1st June was closely mirrored by a strengthening Dollar, which reached £1.26 in mid-august. The rally in the market was modest; however Asian demand saw improved turnover in Bordeaux and some higher values. Lafite 2010 touched almost £7,400 twice on the Liv-ex exchange, a five-year peak, but couldn’t find momentum.

Nevertheless, the market is far from in retreat: the Liv-ex 50 index reached a six year high in June and, despite dropping back, returned to almost this level at the end of August. And a number of sectors continued to surge other than Bordeaux, notably Burgundy (is there no limit?) and high end Champagne.

In all areas the picture is of continuing demand for the crown jewels but somewhat less interest in the middle market. Bordeaux’s falling share of trade on the Liv-ex platform, hitting a low of 55% in late August (see chart below), reinforces the suggestion of a structural change in the market. However, with many traders away from desks for their summer holidays there is a seasonal element at play too.

2015 Bordeaux (not yet included in the Liv-ex 50) has not moved significantly following the initial post-shipping burst of enthusiasm and there is little discussion yet of the prospects for 2016 as it becomes physically available. Major trade tastings of the bottled 2016s will take place later in the autumn, followed by definitive scores, which should give pointers as to future market interest.

When is an investment not an investment: beware tannic vintages

In the May Review we alluded to the long lags before market ‘take-off’ of admired but tannic vintages. Both 1996 and 2005 required a decade before values rose significantly above opening prices, in the case of 1996 after falling some way below in the interim. 2010 is another such firm vintage, in all likelihood the ‘daddy’ of the type, providing what may be a triple high watermark of tannins, alcohol and opening price!

So why are such vintages often slow to appreciate? In virtually all cases the wines were well-noted by critics and by merchants who attended en primeur tastings, and were universally dubbed as ‘investment’ prospects. 2010 was blighted by timing of course, appearing on the market in 2011 at the peak of demand for luxury goods of all types in Asia, and priced accordingly. The contraction caused by suppression of luxury consumption by the new presidency in China had a profound impact on the market for three years. The 2010 vintage as a whole has stubbornly refused to move on and the prospect of owners seeing values above their opening prices is still, seven years after release, remote in the majority of cases. The ten year rule appears to be asserting itself again.

Is initial pricing the only issue here? Apparently not, as the chart for 2010 Mouton-Rothchild below suggests. Values bottomed out between 2014 and 2015, dropping to somewhere close to Bordeaux negoçiants’ cost base, effectively the floor level. Since then the only substantial lift was in 2016, as a consequence of the Brexit referendum and ensuing slump in Sterling – in Dollar terms the stock did not pick up and in fact is still dropping.

More likely is that the general consumer market for luxury wines is simply shy of overt tannins and sees no interest in the wines yet, certainly not to drink today. If corks are not yet being pulled then merchants will be reluctant to hold large inventories; and, with the notable exception of high profile collectors, consumers of luxury wines do not themselves tend to lay down stock for the future.

What is the market perspective? Dealers recognise that 2010, more so than the strong-but-succulent 2009, is a waiting game, and are not bidding up stocks. In due course the wines will soften and their true quality will be appreciated more widely, but how long that may take for the top wines is an open question. Not such an investment vintage perhaps.

And what does this argument suggest for Bordeaux’ soon-to-be-shipped 2016 wines? This has been framed as a classic vintage, following the showier 2015, with confident yet discreet tannins. If discreet trumps confident then the early prospects could be encouraging; if the reverse then we may be looking at another decade-long wait before the wines show their paces. At this stage much is riding on the Autumn in-bottle tastings.

Finally, what of the counter-argument? Are the less-tannic vintages better investment prospects in the medium term (unlikely in the long term of course)? Is there an argument for buying deeper into the 2017 vintage for example? If the generally lighter-weight 2011 vintage is a guide then there is a case for looking at 2017 with fresh eyes, possibly to get ahead of the game before the wines are shipped. Mouton 2011 exhibits a more classic investment curve than 2010. It fell somewhat after release, another vintage caught in the bear market of 2011-2015, but it has subsequently shown the sort of appreciation that gives satisfaction to wine investors, up 47% in three years. The wine is drinking pleasantly well now and, as a lesser-priced example of the label, the supply chain from Bordeaux to Shanghai restaurant is happy to replenish stocks as they are drawn down.

News from the market: 1989 Haut-Brion

The fine wine market was somewhat agog in June when 1989 Haut-Brion traded on the Liv-ex platform at £25,000 for a 12 bottle case. With its 100 point score endorsed by just about all of the top critics the wine is justly acclaimed, and had enjoyed a market value at around £18,500 for almost two years beforehand. During May 2018 a number of cases were traded lifting the price to £21,000, a grand sum in any terms, especially for a Bordeaux that did not carry the Lafite name. Then came the flurry in June, with six cases trading at exactly £25,000. With no bid/offer activity beforehand the suspicion must be of a single commission buyer, acting perhaps for a client who has, intentionally or otherwise, moved the market by his/her actions. The cheapest OWC on Wine Searcher from a significant merchant today is £24,800, with £27,500 being the median offer level. It is possible that the market has let itself be carried away and that the value will slowly revert to its two-year level. There is, after all, nothing new to be learned about the wine. But everyone likes a winner and the renewed spotlight shone on the wine may have wafted it permanently up to a higher step. What is not likely is that the movement is purely speculative – buying in quantity substantially above the prevailing price is the opposite of shorting and as a strategy is either heroic or foolish: it will only pay off if others see even more value in the stock.

News from the market: La Grande Rue Grand Cru, Henri Lamarche

Another flurry of activity in June caught the trade by surprise as all offered Liv-ex stocks of Lamarche’s ‘monopole’ Burgundy Grand Cru, La Grande Rue from 2009-2015 were acquired, likely by a single buyer. The sense of a putsch was heightened by volume bids clearly above the then market price. Even today bids for 20 cases each are visible for the 2010 and 2015 vintages, an unusual phenomenon and signalling a trader with either deep pockets or a powerful mandate. It is, after all, rare for 20 cases of any Burgundy Grand Cru to be in play at any one time. Does somebody know something as yet undiscovered by the rest?

La Grand Rue lived for most of the life of the AOC system a Premier Cru (of Vosne-Romanée), largely as the then proprietor, Henri Lamarche, saw only cost not benefit in seeking the top classification. With a new generation at the helm quality picked up and the Grand Cru title was awarded for the 1991 vintage onwards. Unlike 1989 Haut Brion, La Grand Rue is not a 100 point wine however, though recent vintages have received positive reviews from a number of sources, generally in the low to mid 90s. It is typified as a lighter, delicate version of its grand cru neighbour La Tache.


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