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November 2018 Investment Report

November 2018 Wine Market Review now available to view

Please find below our latest Wine Market Review, updated to 8th November. Topics covered include:

Slow-down in Asia puts brakes on Bordeaux values
~ restrictions on cross-border shopping denting demand

2016 Bordeaux: definitive scores alert
~ 100pts for Lafite, Las Cases and Trotanoy, and more to come?

News from the market #1
~ Have we reached peak Burgundy prices?

News from the market #2
~ What price 2015 DRC Romanée-Conti? £3000 from the agent but where is the market?

Buying opportunities
~ 2016 Bordeaux a safe buy, but don’t overlook 2014

Selling opportunities
~ The logic for letting go of 2015 DRC is almost inescapable!

 


 

Slow-down in Asia puts brake on Bordeaux values

China’s September ‘moon festival’ normally marks the starting gun for orders placed for shipment in time for the Chinese New Year, traditionally the busiest period for domestic sales in the country. This year, according to Bordeaux negoçiants, few orders for top-end wines have been received to date and few more are anticipated until spring 2019. Asia, and Hong Kong/China in particular, is the driver for investment level Bordeaux activity, and anecdotal evidence of a slowdown is corroborated by Livex’s major indices. These are all down in October, wiping out much of the gains since the start of the year. And with the 10% strengthening of Dollar-linked Asian currencies since the middle of the year, a flat index in Sterling equates to deflation in local prices. The market in the Asian region appears, for top Bordeaux at least, to be sitting on its hands.

The continued crack-down on ‘corruption’ is cited as a reason for the fall in demand together with a tightening of rules allowing the personal movement of alcohol from duty-free HK to high-duty mainland. This pathway was for the last decade a significant conduit for top level wines into the mainland, where duty is 40%. ‘Mules’ have been known to make a dozen trips a day across the control point; now, it seems, they are limited to one. Direct sales to the mainland continue to grow, but for entry level and mid-priced wines only.

For the ‘Place’ in Bordeaux, the slowdown in distribution is resulting in rising inventories amongst merchants. Despite the tendency of chateaux to retain stock themselves (see discussion later) recent en primeur campaigns have not been as successful as the long term trend – until recently negoçiants could rely on 70% of purchases being sold during the en primeur period, and now 50% is seen as the norm. Stock is inevitably backing up the supply pipeline and dealers are taking reduced margins in order to maintain cashflow. This goes some way to explain the lacklustre performance of the well-noted 2015s since coming into the market this year. The advent of the significantly larger crop of 2016’s entering the fray in physical form later this year will add another layer of stock to a market showing some signs of stress.

The Livex 1000 index, the only one to include the wines of Burgundy, was in negative territory in October – though still over 8% up in 2018. Burgundy itself posted a 1.3% uptick in the month, as the segmentation overleaf shows. Currency has played a part in the flattening of the fine wine market in the last quarter. After rising earlier in the year, Dollar softness against Sterling during October has served to hold prices down across all sectors.


Liv-ex 1000 and its components

2016 Bordeaux in bottle: definitive scores alert

Major trade tastings of 2016 Bordeaux classes growths in Bordeaux and London last month gave a welcome opportunity to verify the quality of the vintage now that it is in bottle. The quality of fruit was there for all to appreciate from the outset, and what was needed was re-assurance that producers had steered a straight course in the cellar so that the final wines delivered on their initial promise.  Reaction to the tastings suggests that the news is very positive.

To recap, after a year’s worth of rain fell in the five months to 1st June 2016, water-retaining soils were in fine shape to nourish vines right through until mid-September when further showers refreshed the crop. An abundant crop was picked – the largest since 2006 – so producers had no difficulty in selecting the best fruit for their top wines. Broad smiles were the order of the day in all districts, and from en primeur onwards a quiet confidence was palpable. From bottle it is clear that the quality has been encapsulated, with wine after wine demonstrating a vivacity and tension that only the best vintages can deliver. Wines have plush flavours, fine definition and sleek and seductive tannins. When a strong vintage is described as ‘almost drinkable now’, you know that you have something special.

One of the first critics to publish, Jane Anson (Decanter.com) has awarded very high scores, with 100 points to two left bank wines, Lafite and Léoville-las Cases, and one right banker, Trotanoy. She also distributed a raft of upper 90s on both sides of the Gironde. Neal Martin (Vinous) and Lisa Perotti-Brown (Wine Advocate) have yet to show their hands. Martin however has expressed admiration for a number of 2016 Crus Bourgeois, tasted in September in London, confirming that quality in the vintage is not confined to the top echelons alone.

 

Top-performing stocks according to Liv-ex, in early October before definitive scores were published.

 

 

 

 

 

Bottom-performing stocks according to Liv-ex, in early October before definitive scores were published.

 

 

 

 

Once the key voices have spoken there will, undoubtedly, be a flurry of action in the market for the wines as dealers rush to adjust positions, with likely bounces for the most awarded wines. It is too early to know whether this will persist into an enduring uplift. The experience of the 2015s, where price gain has not been sustained, suggests grounds for caution. And in Bordeaux (though not in London as it happens), the wines were judged as very tannic. If this becomes the prevailing view then 2016 could follow other great but firm vintages such as 2005 and 1996 and the wines could slumber price-wise for some time to come.

News from the market: with the 2016s Burgundy reaches peak price?

Another short vintage and another leap in prices, for the scarcest wines at least. 2016 grands crus are already trading above the generally better-graded 2015s and questions are being asked whether this level of demand is sustainable. 2016 was in many ways the antithesis of 2015, itself a small crop. The latter are wines of scale and opulence, easily identifiable in the glass for their overt personalities. 2016 came from a different mould; after an extremely testing vintage where the vines were battered first by frost and then mildew, growers applied all of their skills to deliver a more classic style, with precise flavours and clearer tannic frames.

Nine months after release, prices of the top 2016s on the secondary market are at or above the level of their 2015 counterparts, it must be inferred because of absolute scarcity rather than relative quality. Traders are however reluctant to rush in as they did a year ago for the 2015s, particularly with the knowledge that the 2017s are not far away. After a run of short crops this is close to a normal vintage in volume and, according to Clive Coates MW, “2017 continues the recent run of high quality vintages, and looks like being even better than 2016 and 2015”. High praise indeed but something of a cat amongst pigeons.

It is hard to imagine a world in which there is too much Burgundy, and by the same token there have been few if any years in which prices have actually fallen. If indeed the quality is confirmed when the 2017 wines are launched in January, prices of the majority of wines are likely to stabilise at the mark set by the 2016s rather than lift above. Where pricing has been driven through secondary market activity, as for the grand crus of Rousseau and Roumier for example, levels may shade down once more stock becomes available.

News from the market: what price 2015 Romanée-Conti?

Any customer on the distribution list for the UK agent’s allocation of Domaine de la Romanée-Conti’s top wine, Romanée-Conti Grand Cru, might have drawn a sharp breath on seeing the offer price of the 2015 vintage, almost £3000 a bottle, notwithstanding that the wine may be the best example of the vineyard in living memory. The offer is dated February 2018, DRC being one of the last producers to release their wines in each vintage.

There are many more buyers than bottles, especially in a vintage such as 2015, so stock that finds its way onto the secondary market is likely to be in high demand. What might a reasonable person pay then, for an unencumbered bottle on the open market? The image below shows current (8th November 2018) offers on Wine-Searcher.com.

The offers rise to over £24,000 for a bottle and to almost £68,000 for a magnum!

 

Buying opportunities

The confirmed quality of the 2016 Bordeaux vintage indicates that it represents a safe long term buy, with or without the soon-to-be published definitive scores. Points followers should be on firm ground with timely purchases of Neal Martin’s top picks, especially where corroborated with Wine Advocate scores. But don’t delay: buy ahead of a spike as the market will likely stabilise some time after. For a tip seek out Léoville-Barton. Never in plentiful supply but usually good value, this was almost universally praised at the recent tastings.

Contrarians may wish to bide their time and avoid the froth. An alternative plan would be to look at 2014 Bordeaux. This week’s Master of Wine tasting of the top wines confirmed a quality vintage that sits comfortably in the middle of the league table. Prices of over-achievers like La Mission Haut Brion, Pichon-Baron, Calon-Ségur and Rauzan-Ségla look eminently reasonable against following vintages.  Sometimes the overshadowed years can spring surprises in a way that the highly praised vintages can’t.

The top end of Burgundy may be running out of headspace price-wise, but those in the category below are not so confined. The global market recognises the repute of Dujac, Meo-Camuzet, Mugneret-Gibourg, Groffier, Anne Gros and their likes but this is yet to be fully priced in. What they share with the celebrity estates of DRC, Rousseau and Leroy is their location: the few square kilometres encompassing Chambolle-Musigny, Vosne-Romanée and Gevrey-Chambertin, the most valuable land in the entire world of wine.

Away from France 2015 Dominus (Napa Valley) represents a decent punt on account of its 100pts score from the Wine Advocate. Its current price is some way off that of the equally noted 2013. But a word to the wise: news on the grapevine is that 2016 Napa has the makings of a mighty fine vintage and it may be worth keeping some powder dry to make an assault on these wines once released in the new year.

Selling opportunities

Our analysis of the market for Burgundy suggests that now may be the time to crystalise profits in top 2015 Burgundies – the logic for letting go of 2015 DRC is almost inescapable! The era of under-supply may be coming to an end and while the market will continue to grow the rate may not be as explosive as over the last few years.

The evidence of a pause in the Asian market makes the case for reducing stocks of highly scored wines, especially where the demand comes largely from the region. 2009 and 2010 Montrose have run out of steam, despite their top Parker scores. Likewise 2009 and 2010 Pontet-Canet. Time to head, calmly, for the exit.

Download November 2018 Market Review here

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