The Story of... What the future holds for fine wines

The fine wine markets in 2010 were dominated by Asia and the Lafite brand. This was shown by a number of big sales last year, including Acker Merral & Condit's staggering HK$493m auction in Hong Kong.

But the question is, where will the wine markets go in 2011? Well, according to analysts The Wine Investment Fund (TWIF), wine is already showing a strong monthly performance while the stock markets have remained weak.

What's more, expert analysts not only think that emerging economies like China (and its strengthening currency) will further bolster the global wine markets, but that there's also a direct correlation between growing wine prices and the growing number of world billionaires...

Wine outperformed the FTSE 100

Looking at the beginning of 2011, Exchange Magazine reports that wine investments rose by "a lip-smacking" +40.5% (quoting Liv-Ex), while stock markets also rose, but by nowhere near the same amount. The FTSE 100, for example, increased by just 9%.

And Lafite isn't the only star on the markets. Prices of Lafite rose by around 2.5% over December-January. While this is positive, it pales in comparison to Haut Brion and Mouton Rothschild, both of which rose by 9%.

So, how do these kind of rises effect values on the auction saleroom floor? Well, as an example: a case of the Lafite 2004 which cost £2,200 in December 2008 had risen in value to £8,000 two years later - an impressive value rise by any standards.

"Mouton is the next Lafite"

That's according to Antony della Casa of TWIF when interviewed by Investment International, earlier this year. Just as the Lafite 2008 is proving especially popular among China's buyers, the most popular Mouton appears to be the 1996.

In fact, Mouton 1996 recorded an incredible 32% price increase in just one month. Consequently, TWIF is expecting investors to increase the amount of Mouton in their portfolios in coming months. And also Haut Brion...

Haut Brion vintages from the 1990s proved especially popular among investors in the opening weeks of 2011. Patterns are unclear at the moment, with 'weaker' vintages including the 1997 and 2001 still performing well.

Nevertheless, looking at Asia, the trends indicate that the region's tastes are maturing beyond its famous preference for the Lafite 2008.

The 'inverse supply curve'

Liv-Ex agrees with Antony della Casa, noting that: "The most traded brand in terms of volume (by some distance) was Mouton Rothschild, which appears to have strengthened its foothold in China.

"Elsewhere, Haut Brion and Lafite continued to see voracious buying, along with Pichon Lalande and Lynch Bages." Mouton and Haut Brion, in particular, are "major movers ... both of which continue to see heated trade on the exchange.

"The much-admired 1995 and 1996 vintages piqued traders' interest," reports Liv-Ex.

Asia's buyers are particularly relevant to these trends, not least because (according to several sources) they drink about 80% of the fine wines they buy. According to Exchange Magazine, this consumption could optimise the strengths of wine investments...

"The key issue is that, no matter how good the vintage, the number of bottles can only reduce over time as the wine is consumed, creating an 'inverse supply curve'. And, while supply is decreasing, demand is actually increasing because, as the wine matures, it improves. We are aware of no other asset which has these twin qualities."

Bottles, billionaires and BRICs

We've looked at Asia's growing markets - but what about the bigger global picture?

Well, market analysts Liv-Ex note that, in Forbes' magazine's latest billionaires list, "there appears to be a striking correlation between the number of billionaires and fine wine prices."

According to Forbes, the number of billionaires in 2011 has reached a record 1,210 - up 20% cent from last year's 1,011. Liv-Ex's correlation between wine performances and billionaires is shown in the below table.

Source: Live-Ex

And market experts Wine Investment confirm that these trends are nothing new: "The fact is that the first growths of Bordeaux have long been a barometer of world power.

"From the eighteenth century [wines] were bought by English aristocrats, and then by the nouveau riche of the Industrial Revolution. Currently, as world economic power shifts (China has 800,000 millionaires) the market for fine wine has followed."

Meanwhile, both Forbes and Liv-Ex's findings also point towards the continuing growth and popularity of fine wines in the so-called "BRIC" developing nations (Brazil, Russia, India and China).

Forbes' billionaires list includes 25% of new entrants from China - further good news for the wine markets.

China: the most important wine buying nation

China's economy grew by 10.3%, last year. This is expected to increase in strength along with the Yen, as Asia's buyers pay more in GBP to acquire wines at no additional cost to themselves.

Exchange Magazine estimates that this phenomenon will cause "a rise in fine wine prices of 21% ... a relatively conservative forecast of an appreciation of around the same amount as in 2010."

Not only that, but Exchange Magazine also believes that a "'bull' scenario of +30% to +40% is possible once again."

However, its report emphasises that the 'China Effect' doesn't apply to all wines - but primarily Chateau Lafite, "2nd Lafite" Carruades de Lafite and Lafite's stablemate Duhart Milon.

Why you should be looking forward to 2011...

For now, it seems that "Asian Private" buyers are prepared to spend as much they need to collect and consume their favourite rare fine wines.

This, combined with the growing number of worldwide billionaires and the predicted strength of the Yen, should lead to further World Record-breaking wine sales in 2011.

So, our advice is to keep your eyes on big wine sales by the likes Christie's, Sotheby's and Acker Merral & Condit over the coming year...


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