Wine Market Investment Report December 2019 - Part 2: Looking ahead

by Wine Owners

Posted on 2020-01-16


This article is a follow up to our 2019 year end round-up by Miles Davis, published on the 10th January 2020.

The outlook for 2020

The geopolitical climate will continue to dominate the fine wine market in 2020. Uncertainty continues to hamper confidence amongst wine traders and although our view that the robust long-term fundamentals of wine will play out, there are some short-term issues (more on these below) that need to settle. If these issues, some of which are very specific to the wine market, can settle, we will look back on 2020 as the year of opportunity. Physical assets are doing well, gold is at a seven-year high, and we live in a climate of negative real interest rates. Stock markets are trading at all time highs and there is liquidity in the system, it’s just not finding its way into wine right now. Wine has been underperforming these other assets recently (one-year performances), see here:


WO 150 Index Wine Owners Investment Report

The fine wine market continues to develop and change, and is becoming more interesting, with different fundamentals developing for individual markets, making them more autonomous all the time.

A whole new and significant factor is the U.S. and its trade tariffs, not only treating wines from different countries differently, but Champagne differently to still French wines, and wines above or below 14.1% alcohol from the countries on their hit list. Tariffs will influence the underlying markets, so until we have further clarification it is difficult to predict what may happen next.

As a result, I expect the wider market to start the year a little unsure of itself. There are and will always be opportunities within the wine market, however, but perhaps portfolio allocation has never been more important, producer too. And maybe more important than both of those considerations, are prices and relative value. Buying on the bid side of the market will be the key and good buying will be richly rewarded.

A reminder of performance over a five-year period:

WO 150 Index Wine Owners Investment Report

I continue to favour Italy, particularly Piedmont and some of the super Tuscans and vintage Champagne. 2016 was an amazing vintage for Piedmont and new releases of Barolo should be considered. Of the major markets, I am generally lukewarm on Burgundy, but keener on Bordeaux where some fantastic older vintages, particularly ’89, ’90 and ‘96, are more available on the market than for some time. I think there will be some amazing opportunities this year in this area. I maintain my view that younger Bordeaux is fully priced, especially block buster vintages of ‘05, ‘09 and ’10 where supply is still plentiful and prices are high. I would be highly selective and very price sensitive in California and other ‘lesser’ investment markets, and always on the look out for lower levels of alcohol.

If I had to name one brand to buy this year it would be Sassicaia.

The issues in 2020

Brexit

The election result in the UK cleared the UK air after a period of uncertainty and it appears that producers and importers are relaxed, for now, about any Brexit impact.

Tariffs

The possibility of further U.S. tariffs has taken the place of the Brexit uncertainty but the situation there will become much clearer in mid-February, but I cannot believe anyone is going to be brave before then. If the tariffs remain as they are, I think the market will react in a positive way, negatively if they are any more punitive. The fact that the tariffs are only levied on wines under 14.1% alcohol, and thus wines stronger than that are exempt, is largely ignored by the market as an overriding sentiment takes over and the damage is done. Only wines from England, France, Germany and Spain are currently subject to these measures, making the rest of the world, particularly Italy in my view, look more interesting in the short term. France has particularly annoyed the U.S. with its digital tax aimed at the big tech companies and Champagne, given exemption last time round, may be in the firing line. But who knows what is going to happen next on this issue – the uncertainty is somewhat paralysing.

Hong Kong

The situation in Hong Kong is also creating uncertainty. The people are scared about the future and feel strongly enough to risk life and limb in protest, and China is not happy. The protests have calmed down from their most violent but there were heavily populated demonstrations at the turn of the year. Last week Beijing replaced their H.K. liaison officer with a senior and trusted aid of President Xi, hardliner Luo Huining, who ominously says that “everyone eagerly hopes Hong Kong can return to the right path." He comes with a reputation for fixing tough problems for Beijing!

The situation is complex, and it is likely the impasse will run and run. China can afford to be patient; it is sitting with the stronger hand and can probably slowly strangle the territory into submission without using undue force. Hong Kong has a long history of migration (especially post Tiananmen Square) and the numbers from now on will make interesting reading. Mainlanders are currently arriving at the rate of 50 a day but how many are leaving? Ultimately, I expect a huge number of democracy loving, wealthy locals will be leaving before 2047 but that this is the dawning of a new era for Hong Kong.

As well as being a lively wine hub itself, Hong Kong has been and is the gateway to China for fine wine and houses a lot of the experience and expertise in the region. More than ever, personnel and the location of businesses are transferable, and Hong Kong may lose market share in the longer term. This does not affect the long-term demand for wine, just where and how it is traded. If China was to open Shenzhen as a free port, for example, the impact would be immediate, and Hong Kong would be shunted sideways.

Other themes and points of interest

Bordeaux

The overall share of trade in the wines of Bordeaux has continued to decrease and the 2018 en primeur campaign was another damp squib. 2019 is another good, possibly great, vintage but the Bordelais need to respond accordingly if they want to stop the rot (how many times have we heard that!??). Young Bordeaux wine is still in a state of over supply with warehouses packed; a new lease of life is urgently required and if the Bordelais, by lowering prices, can take advantage of the huge media machine of en primeur to capitalise, they have a chance to turn the worm. I believe they have severely undervalued the power of the en primeur message over the years – we live in hope!

Climate change

Apart from the devastating fires we have seen in the U.S. in recent years, and Australia very recently, what does climate change mean for fine wine? Although winemakers are learning new techniques to deal with warmer weather the obvious and irrefutable consequence will be higher alcohol levels. Bordeaux 2018 demonstrated this in spades, with most wines well above 14%, and some around 15%. Although a lot of these wines can be well balanced, where the riper, more generous fruit copes with the higher alcohol levels, it does not take away from the fact there is a higher level of alcohol, and that’s not good. Most people, but especially connoisseurs, would prefer their wine to be around 13%. Other than the obvious benefits of scarcity, this is another good reason to favour older wines, they tend to be less alcoholic. I remember 2010 recording higher alcohol levels than we were accustomed to and causing quite a stir at the time - they seem perfectly natural now.

General (more for drinking)

South Africa has been receiving some very good press in recent times and quality is improving. It maybe not yet offering wines for investment, but it is certainly worth dipping a toe. I recently bought Meerlust’s Rubicon 2015 following some massive reviews, for not much money, for example.

Piedmont has had a string of good vintages, and there’s a lot of great quality Langhe Nebbiolo and Barbaresci on the market. Produttori del Barbaresco 2016s are both excellent and good value. Prices for these types of wines are the equivalent of generic Bourgogne.

Climate change is good for Beaujolais. The Gamay grape is a tough little number that needs plenty of sun and warmth. There has been plenty of investment in the region and quality and the number of wines providing pleasure is on the up. Do not overlook the versatile Chardonnay from the area either, a leaner style in general compared to the Maconnais and further north.

2018 Burgundy will provide plenty of easy pleasure but don’t believe all the hype from the merchants. Check alcohol levels, there are some that are too warm but in the main they, especially the reds, are generous.

Try and understand the critics and their scoring. At the Judgement of Paris in 1976, the range of scores, out of twenty, came in between two and seventeen. Some of today’s critics don’t really start at anything below ninety three (out of one hundred) and famous producers in half decent vintages are all north of ninety five. Big scores sell wines and are commercially attractive for nearly all involved – they just don’t necessarily reflect the truth! It has all gone way too far and this observer, for one, has had enough of it.

Wishing you well for 2020!

As ever, if you have any questions or would like to discuss anything wine related, do let me know.


Wine Market Investment Report September 2019

by Wine Owners

Posted on 2019-10-08


Is it time to hit the bottle?

At the risk of sounding like a stuck record, the market mood is sombre. It does, however, remain reasonably steady amidst a turbulent sea of macro factors.

Hong Kong is an important market for wine and the ongoing protests are a concern. The original cause of complaint, an extradition agreement between the territory and the Chinese mainland, has long since been retracted but the protests continue, becoming ever more violent. This is about democracy and freedom and the eyes of the world are watching. It is an uncomfortable position for China who cannot afford to handle the situation as perhaps it might in its own provinces but in the long term, remains a very powerful parent. Already the economic effects are being felt; officially occupancy rates in Hong Kong hotels are currently running at about 20%, unofficially they are in single digits. A quick internet search found a room in the territory for US$9 a night, including breakfast!

As we know, Hong Kong, apart from having its own burgeoning wine scene, is currently the gateway to the wine market of China, legally or otherwise. We expect China will open new free ports in time, but the current troubles may just accelerate that process. We think this is a short term problem but in the meantime, trade form that corner of the world is quiet.

U.S./China trade negotiations and Brexit shenanigans continue, and emerging markets are threatened by contagion emanating from Argentina. Thrown in the unrest in various parts of the Middle East and various other more localised scenarios, it’s a right old mess. And what does well in right old messes – physical assets! Here is the Gold price performance so far this year against the WO 150 index.

WO 150 - Gold price performance

We’re not saying there is any correlation, delayed or otherwise, between wine and gold but recent financial history (since the last global financial crisis) has made physical and alternative assets increasingly popular.

We live in an era of negative real interest rates, where buyers of roughly a third of the world’s outstanding bonds will lose money if held to maturity and where even high yielding equities with strong balance sheets are not performing – all very sobering! With all this going on, is it time to hit the bottle?

Within the wine world, my investment themes remain the same; focus on regional allocation, combined with scarcity and relative value is the game.

Please contact miles.davis@wineowners.com with any questions.


Focus on: Screaming Eagle 2009 - 2014

by Wine Owners

Posted on 2019-03-07


In terms of reputation Screaming Eagle is the ne plus ultra of American wines, the equivalent of Petrus on the Right Bank, Romanee-Conti on the Cote de Nuits and Conterno Monfortino in Piedmont.

The prices of the wine varies from £2240 per bottles up to £2600 per bottle for the vintages of 2009, 2011, 2012, 2013 and 2014, but over the last two years it has been the 2009 and 2011 that have made the greatest gains, with 37.9% and 42.7% respectively. Double digt growth seems to be the norm on a CAGR basis.

Screaming eagle index

The 100 point vintages of 2010 and 2007 are roughly £3600 per bottle, and have gown at a slower rate in the last two years, suggesting again that there is better vakue to be had in the 97 to 99 point bracket currently.

Screaming eagle Market versus price

Current market levels puts the 97 point ’09 at £2602 a bottle and the 94 point ‘11 at £2461 per bottle. These prices are at a premium of £350 and £200 respectively to the 97 point 2013 and 98 point 2014, which would seem a little illogical. Hard to see a justification for a discount for equivalently scored wines. As the chart below shows, the 2011 in particular seems over-priced and the more recent vintages would seem to offer greater upside potential.

Screaming eagle Relative value score

Trying to compare Screaming Eagles with other US wines is a rather thankless task as it operates on a different pricing level entirely to every other wine in California. There are several things you can say about it in isolation, however:

  • There is no vintage values at less than £2000 a bottle, and many tip the scales at over £3500 per bottle
  • Three pack OWCs are the norm – almost all stock available comes in this format
  • It has the highest average Parker score over the last twenty years of any wine in the world except Conterno Monfortino
  • No more than 700 cases (12 pack equivalent) are made in any vintage.

It would seem logical to suggest for the medium to long term that younger, higher point scoring vintages offer the greatest potential for capital growth. Not for the faint hearted, of course, but the fundamentals of extremely small production, a style that will see each vintage improve for a minimum of 25 years form bottling and a brand that has cemented itself as the epitome of great modern Californian wine making make this a wine that needs to be considered very seriously as an unavoidable component in any top drawer cellar…


2005 La Mission Haut Brion – pure perfection and a relative value win

by Wine Owners

Posted on 2018-05-17


An overlooked example of value for money here from the 100 point La Mission 2005. Compared to Domaine Clarence Dillon stablemate Haut-Brion, and the rest of the 2005 First Growths, 2005 La Mission is a clear winner in terms of value as is eminently clear from relative value analysis. The only other 100 point wine on the whole left bank is Haut-Brion, which trades at around £6,500. The other Mouton will cost £5,250, Latour £6,600, and Margaux £6,100, all on 98 points, while Lafite lags behind them all in relative terms, commanding £7,700 for 96 points.



Compared to other 100 point La Missions over the year, the 2005 wins out on relative value as well. Whether any of the 2009, 2005 and 2000 will hit the price highs of the legendary 1989 is a subject on which the verdict is very much out, and will depend on how reputation of the vintages develops. Nevertheless, all three look like relatively sound buys, and the 2005 at the offer price just beats the rest (assuming they can be bought at market level).


“The 2005 La Mission Haut-Brion is pure perfection. It has an absolutely extraordinary nose of sweet blackberries, cassis and spring flowers with some underlying minerality, a full-bodied mouthfeel, gorgeously velvety tannins (which is unusual in this vintage) and a long, textured, multi-layered finish that must last 50+ seconds. This is a fabulous wine and a great effort from this hallowed terroir. Drink this modern-day legend over the next 30+ years. Only 5,500 cases were produced of this blend of 69% Merlot, 30% Cabernet Sauvignon and 1% Cabernet Franc.”

100 points, Robert Parker


La Mission Haut-Brion 2005 is offered £4,300 on the Wine Owners Exchange (£4,435 including fees)



Why?

by Wine Owners

Posted on 2014-10-20


Why is there apparently so little wine in Bordeaux when so little of more recent vintages has been selling through? Why buy young wines at release? Will negociants’ balance sheets cope with more vintages that stick? Why would that happen?

Pontet Canet 2013 famously ‘sold out’ within an hour or two of being offered on the Bordeaux Place. Negociants sucked it up and took their allocations. That’s their historical role after all. Merchants generally weren’t having any of it. More relevantly, nor were their private clients. It was a lousy deal for the consumer: 2002, 2004 and 2006 are all cheaper vintages.

Pontet Canet - Wine Owners


Pontet Canet

Now we’re on the cusp of a rather good vintage, the first in a small handful of years. Haut Brion 2008 has been trading at £2,400: a fair price for a lovely wine. To be a good buy, what will Haut Brion 2014 need to be offered to consumers for? £2,000? £1,900? £1,800? If instead it’s offered for £2,500, for example, what would be the point of buying it?

Haut-Brion

Loyalty? Surely not. Would consumers really want to play the stockholder for Chateaux that made extravagant profits out of 2005, 2006, 2009 and 2010 vintages? Some of who pillaged the European Union’s agricultural support fund during the bloody aftermath of Lehmann to construct a new chai or two? Buy into wines that might not drink for 15-20 years and might not be materially more expensive in 2 or 3 or more years’ time? Wines that are made in such benevolent quantities that finding them won't take more than a couple of minutes online? When there are so many back vintages that are coming back down to earth and are challenging our perceptions of value over the last few years?

So let’s imagine that the 2014 vintage proves a tricky sell. Not as thankless a job as the unloved 2013 vintage of course. The really big merchants who have an economic interest in en primeur to succeed and will sell the vintage: the weather, the brilliant Indian summer, the inevitable comparisons with the weather of 1996. Those cool nights, dewy mornings and balmy days under clear skies. But imagine it’s not what you might call a ‘successful’ campaign…

What happens then? How many of the negociants will be able to stomach another huge influx of stock without a corresponding outflux? With credit harder or impossible to come by; stalling European growth; a currency still fairly strong but with a significant downside, undermined by Europe’s recession-states, impatient creditors and a faltering Germany? With banks increasingly wary of lending support?

Of course some negociants will seize the moment to consolidate their position, increasing their market share as they gobble up distressed owners and their stocks. But others?

No one is yet disputing the efficiency of the negociant distribution system via the Bordeaux Place. After all, the huge Tuscan estates were sufficiently impressed by the system to want in. (And if you want your Libournais estate to be Classé, woe betide you if you try to circumnavigate the system.)

But it doesn't automatically follow that you have to believe in en primeur as long as it undervalues the consumer’s stockholding role to adhere to the established Bordeaux distribution model.

Passion-driven many of us may be, but perennially stupid we are not.


January market report

by Wine Owners

Posted on 2014-02-06


Average cellar size £60,000

Total cellars under management £40m

January Overall
Bordeaux 26% of total trades 39%
Tuscany 23% 12%
Rhone 21% 13%
Burgundy 21% 17%

Enthusiastic reviews from Antonio Galloni seem to have piqued interest in the 2010 vintage in Tuscany and Piedmont, with back vintages in Tuscany hanging on the coat-tails of the 2010. The tried and tested Supertuscans seem to be the big winners, with trading users offering and bidding around Sassicaia, Ornellaia and Masseto in mid January, with a high correlation of offers to trades across the region.
The inclusion of some excellent new private collections of Rhone and Burgundy in December and January have pushed up the market share of those regions to rival Bordeaux in those months, with a spread of private and trade buyers picking up top wines from producers like Guigal, including a rare parcel of 1989 la Turque trading at £2,900.
Bordeaux, even in a relatively flat market for the region, continued to account for the largest percentage of Exchange trades in January. Interest focusses around classic wines such as 1982 Latour (recent trades at £13,300), top scorers, and ‘off’ vintages, particularly among the first growths. On the right bank in particular, 2005 appears to be attracting new interest where the price is right, so perhaps the prospect of an uninspiring En Primeur season is already encouraging sparks of interest in great vintages with a track record of quality and performance. Index comparisons show a relatively flat year’s market, with Medoc Classed Growths slightly underperforming, and top level Burgundy slightly bucking the trend by showing 5.6% growth compared to a base value at Feb 2013.

Wine Owners Indices


Degrees of Perfection – Two great vintages compared

by Wine Owners

Posted on 2013-10-18


Wine Owners - Smith Haut Lafitte

Comparing the 2009 and 2010 vintages of the overachieving Chateau Smith Haut Lafitte shows how vintage styles can make a huge difference to market value. The massive and opulent 2009, which wins a perfect score from Robert Parker, is by no means a huge qualitative improvement on the slightly lower rated 2010. In fact, as we’ll see, plenty of reviewers prefer the 2010.

The obvious feature of the price comparison below is that the market price of the 2009 with its 100 point rating from Robert Parker has risen by well in excess of 100%, while the 2010, which gained a few points on its initial rating (95-97, rerated to 98+), has remained steady at close to release price.

Comparison graph Smith Haut Lafitte

One point to take away is that a very good re-rating is not enough to take a price higher in the current market unless it is a perfect rating. While this may be disappointing for those who bought 2010 and not 2009, it does mean the 2010 is considerably less expensive to buy now, in what is a relatively low market. Considering Neal Martin, Wine Enthusiast and Jancis Robinson all rate the 2010 higher than the 2009, albeit marginally, it certainly seems the better buy of the two vintages with a market value of £870 against 2009’s £1,487. For a price conscious buyer, the prospect of spending almost double for an extra 2 Parker points might seem hard to swallow, so unless the particular style of the 2009 appeals very strongly, the 2010 feels more like a reasonable price for a wine of that quality.

2009 2010
Robert Parker 100 98+
Neal Martin 94 95
James Suckling 96 95
Jancis Robinson 17.5 18
Wine Enthusiast 94 96
Wine Spectator 96 96
Wine Owners 95 94


How does it look in comparison to other comparable wines? Similar scores in Pessac were achieved by Haut Bailly (98 RP) and La Mission Haut Brion (98+):

Comparison graph Wine Owners LTD

Haut Bailly has put on a similar amount of weight, but is still quite a bit more expensive to buy at around £80 per bottle. Both wines have outperformed the Wine Owners 150 Index, showing an encouraging ability to hold value in a difficult market. Honorary First Growth La Mission Haut-Brion, on the other hand, has behaved just as one would expect of a top flight wine that didn’t quite make the perfect score, slipping steadily downwards to 15% below the ambitious release price. At around £5400 per dozen, it makes the other two look like good finds. Perhaps the most interesting thing to note here, though, is the huge influence that Wine Advocate scores continue to exert on market prices, particularly in Bordeaux. With Parker’s sale of his stake in WA, and the high profile departure of influential critics like Jay Miller and Antonio Galloni, many might like to think that the journals days as a key market influencer are numbered. Commentary abounds about the future of wine criticism, whether the future lies in collaborative reviewing along the model of Cellar Tracker, aggregate scoring, or whether a new super-critic will emerge to take Parker’s place. The numbers, however, tell a different story, and testify strongly to the market’s desire for a reference point. 2010 Smith Haut Lafitte is available on the Fine Wine Exchange at £820 IB


Data Manager joins

by Wine Owners

Posted on 2013-01-07


We're absolutely delighted to welcome Jonathan Picchi to the team! Jonathan takes on responsibility for our market-leading referential database of fine wine, with a long-term development brief on the top of current processing. A french national, Jonathan has recently moved to London from his native Paris, having completed a masters in statistics and information analysis from the highly regarded ENSAI school in Rennes. His expertise in data modelling will be invaluable as we deepen our analysis and interpretation of market data to help fine wine collectors understand the true value of their collections. Jonathan is pictured in our Old Street offices in London's Shoreditch, EC1.


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