Fine wine investment: Checking in on India

New year, new destination for Amphora’s intrepid senior management team as we made our debut recently in Chandigarh, the ‘Garden City’, about fours hours by train north of Delhi. It is very encouraging for fine wine investors to know that there are so many places where the concept is still new. Not only that but on this occasion we invited 40, expected 25, and fully 50 interested parties showed up!

That creates certain pressures when there are only so many bottles of Haut-Brion 2003 you can take through customs into India. Usually we will prepare the palate for a blind-tasting with a glass of bubbly but in deference to times past the hotel in its wisdom brought out glasses of whisky!

This is yet another thing colonial Britain has to answer for. Intuitively you wouldn’t choose whisky in a hot climate, but for many years, until quite recently in fact, accepted wisdom held that only two alcoholic beverages were consumed in India: beer and whisky. As regular readers of this column will know, the India we have been discovering over the last four years has been falling hook line and sinker for the grape. Grain still has its place, but many people particularly from younger generations are now opting for wine.

While there is always a great deal of interest in the proposition itself, as soon as we disclose that the secondary market is denominated in sterling, the Brexit question arises. We have written about the currency impact of Brexit several times in recent weeks and are not about to go over it all again now, other than to report on the position new investors were most comfortable with.

In short, the evidence of previous sterling declines is that the fine wine market benefits as prices become cheaper for foreign investors. In the event of a ‘no deal Brexit’ which most people seem keen to avoid, sterling’s decline will be partially offset by rising wine prices, so under this ‘least likely’ scenario (least likely because most people seem keen to avoid it, no other reason), foreign investors are partly hedged.

In the event of a deal we suspect sterling will rebound 10% and foreign investors will immediately make a currency turn. How so? Sterling firmed up two weeks ago simply on the strength of an amendment to take no deal off the table being debated in Parliament, so there is likely to be a relief rally once a deal is struck.

In this circumstance wouldn’t fine wine prices logically fall? As we have discussed in recent weeks the relationship isn’t that linear. Furthermore, fine wine prices respond to feelings of economic well-being. If no deal represents short-term chaos, presumably a deal represents short-term stability.

Those who had some experience of fine wine were keen to learn whether we thought the Burgundy rally had any more legs. Our first note of this year showcased Amphora MD David Jackson looking for interest in top end Burgundy to trickle down to secondary producers.

Look back a decade and Bordeaux first growths were in their China frenzy phase, advancing from premia over second to fifth growth wines of just over 100% to multiples of the price. We all know what happened after that, but we note with interest that investments in ‘second label’ wines even allowing for the correction have advanced to the tune of 700% over the last 10 years. Let’s take Petit Mouton 2006 as an example:

For sure, Burgundy has outperformed more recently, but that is not quite the argument. If buyers were attracted to the Mouton name, even packaged as a ‘Petit Mouton’, and the discounted price (on first release Mouton 2006 was not far short of 10x the price of Petit Mouton 2006), does this hold any clues for what may lie ahead with the Burgundy sector?

We currently see tier 1 Burgundy trading at well over £100,000 per case, but tier 2 wines are literally a fraction of the price. Ponsot Clos de la Roche, one of the all-time greats, costs around £5,000 a case, and Clos de Lambrays about £1,500. Now we fully accept that betting on the next big thing is always something of a punt, but in a diversified portfolio we believe the potential rewards more than match the risk.

Talking of Ponsot, it is one of the most prestigious producers in Burgundy, indeed it was Domaine Ponsot that brought down the famous fraudster Rudi Kurniawan, who made the rather elementary mistake of ‘replicating’ a bottle from a vintage that the Domaine never actually released.

The level of detail at Ponsot is second to none. There is no sorting table because each below par grape is painstakingly removed from the vine in advance of the harvest. They use no chemicals and pay assiduous attention to the cycles of the moon, and this attention to detail means that wines from the estate are among the most desirable in the world.

So, when you look at, say, the 2012 vintage, you find Roumier changing hands at £105,000 a case, and Leroy’s Chambertin around £115,000. In terms of outright desirability we accept that Ponsot Clos de la Roche Vieilles Vignes is not quite as good, but there really isn’t much in it. There absolutely isn’t £100,000 worth of difference, but the Ponsot can be had for just over £5,000 a case. This looks absurd to us, because it is. And well worth the ‘gamble’.

Philip Staveley 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 with Amphora.