Philip Staveley
The views expressed in db Reader do not represent the views of the drinks business.

Notes from around Asia

It was a very interesting time for Amphora to conduct a whistle-stop tour of the Far East over the last two weeks. As we have observed before, domestic investment opportunities differ dramatically across the Asian region, as do attitudes to physical assets. In India, for example, the “store of wealth” and “collectable” nature of buying fine wines is much more important than the financial return aspect, whereas it is quite the opposite in Japan.

SingaporeIndia as a society is much more bifurcated than Japan. In India the “haves” have a considerable amount, because they have had the opportunity and wherewithal to make the best of a vibrant domestic investment scene. In addition, when risk free Rupee returns hover around the 7.5-8% mark per annum, it is a bit more difficult to argue to them the case for a higher risk 15-20%. As we have suggested in earlier articles, however, they can afford, and understand the need for, alternative stores of wealth. They are also natural collectors of fine wine.

Japan could not be more different, on virtually every level. It almost seems to be one massive single middle-class. That is far from accurate, in fact, but it is true to say there is a wealthy and ageing population. All populations are ageing, of course, but the elderly is the fastest growing demographic in Japan, and it houses considerable wealth.

To us at Amphora, Japan is particularly fascinating right now. For a long time interest rates have been incredibly low, and are obviously currently in negative territory. We spoke at great length to a couple of investment advisers who suggested that for a domestic Japanese investor to make anywhere near a 5% return would be considered fantastic, and suggested that the risk appetite would have to be quite high to anticipate a return on that level.

As a result the types of return which can be hoped for over the longer term in the fine wine market place look very attractive indeed. Furthermore, when you consider that the Yen is currently strong because domestic investors typically repatriate funds when the global economic horizon looks cloudy, whilst the Pound is currently weak due to Brexit concerns, and you have quite a potent cocktail for a Japanese investor.

Singapore is different again. It has tried for years to knock Hong Kong off its perch as the king of regional entrepot trade, and as best city in the region for ease of doing business. What it has focussed on in the last decade or so is an emphasis on wealth management, with companies offered very attractive terms to locate there.

Amphora’s clients know very well that this blends perfectly with the approach we take to fine wine investment. Don’t buy a case because someone down the pub thinks it’s a good idea. Rather, allocate a proportion of your investment portfolio to fine wine and take it seriously. As a result we believe that we will be able to provide an exciting alternative investment experience to the clients of these Wealth Management firms.

Beyond that, Singapore is awash with wine merchants and private collectors with huge portfolios. They have been buying fine wine in size for the last 30 years, so the market can hardly expect an uptick in interest from that quarter.

Taipei was once again very receptive and on this occasion in addition we presented to prospective investors in Taichung, so we can’t be accused to not trying to spread the message!

On this trip we also followed an existing client’s recommendation to visit some of his network in Kuala Lumpur which was extremely productive. It is fair to say that the Amphora International Division is pulling its weight!

Everywhere we went the referendum question arose and you will be relieved to hear that we are not going to rehearse any of the opinions and arguments here. We were delighted to note, however, that many of the foreign investors we saw regard the fine wine market as a perfect hedge against the result of the referendum.

The logic is simply this: recent evidence would suggest that the market does particularly well at times of Sterling weakness. Since it is denominated principally in Sterling, it becomes cheaper for foreign buyers when the pound weakens.

If “vote leave” triumphs, Sterling weakens, and the market goes up, as it did last November, and indeed, on Monday. The rise in prices offsets the weakness in the currency. If “vote remain” wins next week, Sterling strengthens and existing foreign investors earn a currency gain.

At Amphora we are of the view that after the correction and long consolidation, the market does not now require Sterling weakness to move ahead. We believe there is sufficient momentum to justify a positive outlook for the rest of the year and beyond. As you can see from the fluctuations in global stock markets over the last week there is still a lot of uncertainty out there. This is just the sort of environment wherein you might expect a physical asset with the characteristics of fine wine to perform well.

 

PhilPhilip Staveley (pictured) is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition at APM. www.apmwineinvestment.co.uk

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