Fine wine buyers urged to be cautious

Despite a buoyant market, those in the fine wine trade should approach this year with caution as price rises achieved during the course of 2010 are not only unsustainable but undesirable according to Jack Hibberd, research manager at Liv-ex.

Fine wine’s momentum built steadily throughout 2010. For the second year in a row, it was Asian demand for Bordeaux that dominated the market, sending prices for Lafite and its first growth brethren soaring to new heights.

The Liv-ex Claret Chip Index was up more than 50% for the year, while the Liv-ex Lafite Index rose almost 80%. Meanwhile, the second wines of the first growths were loath to be left out, with multiple vintages more than doubling in price in the space of a few autumn months.

Numerous other brands, such as Lynch-Bages, Duhart-Milon, Beychevelle and Pontet-Canet, also experienced a sharp increase in demand, and it was those wines from unloved vintages (1999, 2002, 2004 and 2007) that benefited most. Add in the 2009 en primeur campaign – which saw various score, price and sales records set – and you have a potent and heady mix.

With the arrival of a new year, it seems the market has much to celebrate, but it is also true that it is approaching 2011 imbued with a slight note of caution.

The reason? In short, price rises of the scale we saw in 2010 are clearly unsustainable – or, taking a long-term perspective, even undesirable. And despite the slight broadening we saw in the second half of the year, demand retains a narrow focus; the firsts alone accounted for a record 60% of exchange turnover by value in 2010.

The availability of desirable stock also remains tight. The slow drip-drip of wine into the market by the top châteaux (one has even declared it will not be releasing any more stock until spring) is certainly not helping matters.

With some market commentators starting to call “bubble”, a return to the long-term CAGR of 10-15% in 2011 would do much to calm nerves. The leading Bordeaux châteaux could do much to remedy the situation by easing open the doors to their cellars and releasing more stock. A small correction is probably a price worth paying in order to create a healthy, liquid market.

Leaving aside these issues, we can look forward to 2011 with some confidence: the market remains buoyant; the trade, particularly in Bordeaux, is well capitalised; and most collectors and investors are sitting on substantial profits.

Moreover, new markets for fine wine continue to open up and the Chinese economy continues to grow at a rapid pace. (Although fears over inflationary pressures and a tightening of monetary policy in China should not be ignored.)

We also have another high-quality, and undoubtedly expensive, en primeur campaign to look forward to in the early summer. By then the Year of the Tiger – competitive, exuberant and industrious – will have moved into the Year of the Rabbit – introverted, calm and astute. The omens then (not least for Le Pin!) are good.

Jack Hibberd, research manager, Liv-ex. Taken from the January edition of the drinks business’ Fine Wine Monitor