Comment: Leading châteaux in likely shortfall

An increasing number of Chinese, Japanese and Filipino investors are entering the fine wine market according to Stacey Golding, investments director at Premier Cru.

Explaining the development she notes that wine is rapidly moving from a status symbol to a serious asset opportunity in Asia, and this trend will create a shortage of certain leading labels.

"While the economic situation flickers from one crisis to the next, many investors are beginning to seek out alternative methods of spreading their portfolio risk to ensure minimum exposure to the myriad macro-economic problems. Alternative investment management companies are capitalising on this period of uncertainty by differentiating their investment product offering to traditional investment products such as equities.

In comparison to other alternative investments, fine wine has advantages over the likes of art or property. This subject is not a new one, but what has come to light is the varied levels of interest from investors based in the Far Eastern territories.

Recent analyses by our experts have revealed a growing level of interest by Chinese, Japanese and Filipino investors in the fine wine market – a market that has historically been reserved for European and US connoisseurs of wine and specialist and knowledgeable investors interested in the broad “alternative investment” arena.  
China in the last five years has seen its rate of wine consumption grow exponentially. Chinese palates are slowly but surely adapting, learning the complexities attached to wine and, accordingly, wine has become a more understood commodity. In light of the economic turn, wine has rapidly moved from a status symbol to a serious asset opportunity.

The Philippines – the third largest wine drinking nation in Asia – has launched the world’s second largest multi-million dollar wine storage warehouse, and the wine investment market has taken off with investors looking to those with specific knowledge and contacts for investment advice.

The sudden incline towards wine as an investment stems from the culmination of the strength of the wine market (versus the stock market) in the last six months, the historical outperformance of wine as an asset class in previous economic downturns and the valuation of the yen against sterling.

Fine wine is an asset that improves over time and it has consistently outperformed all other forms of recognised investments. Investment in wine over the last seven years has produced an average annual return of 16%, easily outstripping the performance of Western stock markets over the same period.

It is well known that the Chinese are drinking Château Lafite as a number one choice and one which only the wealthy can afford.  Their second choice seems to be Carruades de Lafite – the second wine of Château Lafite.  There are, however, a number of other châteaux that are increasing their brand recognition and thereby increasing sales.

Vintage is not yet as important as the label itself to the Asian market, unlike the traditional investment and drinking markets; however, the greatest vintages still command the highest prices and offer the greatest kudos. New drinkers tend to start with young wines, and the Asian market is still a young one at that. As their palates develop they will learn to be patient and the mature vintages will become the most desirable.

What’s more, there is no capital gains tax on fine wine investment. The culmination of the history and security behind this form of investment has attracted a new breed of investor from territories spanning as far as the Philippines, seeking to step away from traditional forms affiliated by shady human intervention and the banking sector. Savvy Japanese investors are now placing significant orders with leading wine investment companies, in order to take advantage of the “ripe” market conditions.

From an investment point, Premier Cru feels the drinking of the great châteaux at such an early stage in their development will create a shortage of certain châteaux when they should be drinking; as usual prices should only move one way."

Stacey Golding, investments director, Premier Cru, 23.07.09