Fine Wine Monitor – Market Leader

Fine wine index beats houses, stocks and bonds; while market anticipates lively trading in 2005 Bordeaux

Activity in the shortened month of December dropped off from the heady autumn months but was still 15.6% up on last year. The market in 2005 as a whole turned out to be pretty buoyant, particularly in the second half of the year. The Liv-ex 100 Fine Wine Index was up 18.7% year on year, beating houses, stocks and bonds in the UK (see table below).

After two very flat years for the fine wine market, our three major indices all posted healthy double-digit gains. For the second year in a row blue chip Bordeaux generated the best returns. The Claret Chip Index, which tracks First Growths from 1982 onwards that score 95 Parker points or more, posted the best returns, while the Liv-ex 500, which has a lower weighting to Bordeaux and covers many more wines, returned only 12.6%.

The outlook for the year ahead is positive. The economic backdrop remains pretty benign and wine, as a late cycle play, should continue to do well. The unwinding of the SIPPS u-turn may have a dampening effect on prices in the early part of the year, but as we said last month, we are not seeing much weakness at the moment.

Indeed, our major theme for the last two years is that young wines looked overvalued relative to older vintages. In general this is still true, but some of the more obviously “cheap” mature wines have become much less so over the last year. We do believe, however, that despite this, older stocks are going to continue to outperform, but the best opportunities may now lie in the second-tier wines.

In contrast to last year, the next 12 months is going to see a lot of exciting new wine released onto the market. 2005 has been a good to excellent vintage for most of France’s major wine regions, with Bordeaux 2005 likely to be the major event of the year. This will introduce a lot of high quality young wine onto the market. The new supply may take some of the shine off some of the better recent vintages and will not make the also-rans any easier to sell. Pressure on younger wines would intensify further should the dollar start to weaken again.

Nevertheless, the 2005 vintage will bring a lot of new money into the market. The publicity generated by the SIPPS debacle has also aroused considerable interest among the investment community and we expect several new wine funds to launch this year.

At the quaffing end, the 1999s look set to take over from the 1997s as the “glugging claret” of choice in 2006. Indeed, the 1997s are no longer available in anything like the quantities that they once were and prices have even started to rise!  db February 2006