Comment: What are the future fine wine uncertainties?

While 2009 began shrouded in fear and foreboding, we enter 2010 basking in positivity and optimism. Geraint Carter, investment analyst at Bordeaux Index, considers the direction of the fine wine market in 2010 and beyond and asks: could we be looking at the prospect of the most over-priced vintage ever?

The dawning of 2009 in the wine market, as for just about every other, was shrouded with gloom and foreboding. The once fanciful Crisis of Capitalism appeared to have arrived with a vengeance and its consequences would scar the world economy for decades to come.

In the rarefied niche of fine wine the much trumpeted claim of asset diversification stood for nought as the core Bordeaux Index fell by more than 15% and losses in the much speculated 2005s slumped by up to 50%.

Even the thoroughbreds that represented the core of so many portfolios (prime vintages of Latour, Margaux and Cheval Blanc) were nursing declines of around a quarter from just three months earlier.

Perhaps more depressing than the violence of the post-Lehman declines was the complete unwillingness of even the bullish to call bottom. The oft-heard refrain “if the worst happens one can always drink it” was offering little by way of comfort and less still by amusement.

Indeed, for many it was the broader market context that looked the most troubling. As the “wise heads” of the City are want to observe, investors cope well with bad news, very well with good news but appallingly with uncertainty.

As rumours swirled of major redemptions from prominent wine funds and large private investors liquidating “at any price”, there was genuine fear that the very infrastructure of the market could fail. And what did we have to look forward to? An inevitably over-priced, mediocre 2008 en primeur campaign destined to follow in the ignominious footsteps of 1997.

Yet here we stand now with our tails up admiring an index showing an increase of nearly 15% for the year just gone, tight stock positions across multiple brands/vintages, a well-priced and consequently wildly successful EP campaign under our belts and the prospects of a bun-fight for the forthcoming “Vintage of the Century” 2009s.

The reasons for the strong recovery – deep and persistent Asian demand, stimulus/cheap money and the return of risk appetite – have been covered here previously and we stand by this analysis.

Similarly, we have commented extensively on the inconsistent nature of the recovery – take out Lafite and Mouton from 2009 activity and you’re left with a very different picture; and the impressive depth of the wine market – effectively transferring many 10s of millions of pounds of wine from one set of investors to another.

But as space is short, we thought it most interesting to pose some questions, the answers to which will determine the direction of the fine wine market in 2010 and beyond.

Hong Kong Phooey? Will Chinese demand continue a pace or will bubble concerns curb interest?

Will Lafite continue to outperform or will traditional relative value measures reassert themselves?

2005: friend or foe? Having largely missed out on the 2009 recovery, are these feted wines set to rebound? Or given the large tradable positions and speculatory nature of so many purchases, could the 2005s be in line for a renewed bout of selling?

En primeur 2009 Midas touch? Will Parker lean towards 2005 austerity or 2008 generosity? Will the Bordelaise look to claw back some of the rewards “lost” to the market in 2008? The world of 2010 is far removed from that of 2006. Far from a rerun of the 2005 EP campaign, could we be looking at the prospect of the most over-priced vintage ever?

2010 is set to be a fascinating year in the fine wine market and we look forward to commenting on it from these pages.

Geraint Carter, 14.01.2010