Fine wine auctions: hammering out the issues

The last year has seen fine wine down overall, Burgundy prices rise and fraudsters at large. Stuart George examines the auction market from 2012 to 2013.

auction-hammerIT WAS a funny old year. In 2012 a Korean pop singer became a global phenomenon. Venus came very close to Jupiter. And the world did not end on 21 December, as some had blamed the Mayans for predicting.

In the art auction world, 2012 was a banner year for trophy hunters, thanks to “The Scream”, Richter and Rothko. In November, auctions at Sotheby’s and Christie’s brought in $787.3 million (HK$6,105m). All this amid a financial crisis.

But the sometimes astonishing prices did little to ease growing concerns that a price bubble was swelling, that the market was becoming sickly, and that China’s once seemingly inexhaustible buying power was starting to turn lethargic. Sound familiar?

Munch’s tortured figure is probably how wine auctioneers looked when they added up their year-end figures. Total live auction sales by the big five of Acker Merrall & Condit, Christie’s, Hart Davis Hart, Sotheby’s and Zachys raised $334m (with premiums) this year, down 21% from the record $405m achieved in 2011.

The average lot price in Hong Kong last year was $6,226, 32% down on 2011 and about as much as a case of Mouton Rothschild 2005 costs these days. This is a long way from the $219,000 paid for 12 bottles of Henri Jayer’s Cros Parantoux 1985 at a Hong Kong auction in February 2012. Confidence in the fine wine market continues to be driven by vaunted prices for the rarest and most sought-after bottles.

KNOW YOUR RIGHTS

The London-based online wine exchange Liv-ex reported that five of its six major indices were down year-on-year. The worst performer was the Liv-ex Fine Wine 50, down 9.6% in 2012 and 24.7% since 2011. Generally the indices fell for the first six months of 2012 before perking up in the second half of the year.

The five-year figures for Liv-ex indices remain very sound and assert the long- term value of wine investment. As of January 2013 the Second Wine 50 had gained 146.9% since 2007, the DRC Index 79.9%, the Right Bank 100 67.4%, the Super Tuscan Index 52.8% and the Fine Wine 50 22.8%. Every time we (or the Mayans) think that the world is about to end the wine market confounds the most pessimistic predictions.

LAFITE OF CLAY

Lafite is still the most traded first growth on Liv-ex – Lafite 2009 and 2008 were the most traded individual wines – even though its volume has almost halved since 2011. It accounted for 7.5% of Acker Merrall’s turnover and is still a hugely lucrative and significant wine brand, as indeed is cru classé Bordeaux as a whole, with “off” vintages being favoured recently. But DRC, based on auction house figures, is now the Andy Warhol of the wine market – the one everybody wants above the mantelpiece.

christies-auctioneerDRC accounted for 17% of Acker Merrall’s turnover in 2012 and only two of Christie’s top 10 lots were not Burgundy. The Hospices de Beaune raised a record total, doubtless helped by the presence of the lovely Mrs Sarkozy (whose currently unemployed husband is teetotal). Burgundy’s share of trade on Liv-ex reached a record 14.5% in January 2013.

However, other Liv-ex figures suggest that auction room hype for this domaine is not all that it seems. The DRC Index reached a 10-year high in May 2012 but was down 0.9% for the year. Domaine de la Romanée-Conti’s secondary market performance has been flat but it looks good because the first growths have declined so much.

LIQUID BUBBLES

Bordeaux still has the volume; Burgundy now has the prices. Jayer and DRC are the big beasts of the fine wine world but the tiny amounts available cannot sustain a fizzy secondary market for long. As the American economist Herbert Stein said, “If something cannot go on forever, it will stop.”

Auctions still attract a lot of attention because of their sense of exclusivity, the urgency that they can create and the better prices they can offer to sellers. But paying wild sums for fine wine doesn’t necessarily signify a healthy market. High prices signify demand, nothing else. And demand, particularly in Asia, is a fickle thing. Is it a bubble or a new reality?

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