Of Brexit and first growths

A few more days into the post referendum era and while much of the political landscape is shifting dramatically, stock markets are holding their nerve, just, and sterling continues its subsidence, with the fine wine market marching serenely on. Those last two elements are linked, of course, and we are yet to learn whether the market’s advance will be affected once sterling’s decline abates.

For the present it is important to see what has participated in the rally, and what has been left behind. This is an ongoing exercise, of course, and at Amphora we will be exploring the matter very closely in the coming weeks.

This week we are examining the first growths, to see what opportunities are being thrown up. We have tried to keep the charts that follow as clear as possible, so what I hope you may assume is that if your favourite vintage is missing, nothing particularly noteworthy has happened in the last two weeks.

Firstly let’s look at Lafite.

Here we see contrasting performances over the last six months. The 2009 has barely moved; the 2006 has moved up quite gradually; the 2008 has had the biggest shot in the arm since the referendum vote. In simple terms this would seem to support the view that the lower priced wines have led the way, which in itself might recall the heady days of the 2006 to 2011 period. During that period the off vintages, being lower in price, led the way in both significant bull phases.

Please note the prices of the 99 point (RP) 2009, and the 98 point 2008 Lafites, above.

Let’s turn to Latour.

Again the on vintages are lagging. We have remarked on the value resident in Latour 2009 in past notes. In this case the laggards have perked up most post referendum, but they still trail the off vintages over this time horizon by some margin. Interestingly they awoke in April, and to that extent tracked the Liv-ex 50 index, below. We can speculate as to which led which, and will return to this point later.

How about Margaux?

Something of a mixed bag here, although we shouldn’t be too surprised to see the 2005 bringing up the rear. During the Parker retrospective tastings last year it failed to be elevated beyond 98+, a grade achieved in 2008 when it went physical, and it has drifted without particular stimulus since. It is curious to see how little action there has been in the 2006. It achieved a better score (94) than either the 2002 or 2004, but trades at a discount of some 10% to both of them.

Mouton Rothschild:

One of the busier charts, for which we apologise, but quite a few Moutons have had a bit to say for themselves over the last 6 months. Unlike the other First Growths already covered, we now have some performance from 2009 and 2010, even though they trade at a handy premium to the off vintages. The curiosity here is the 2002, which sits at a 10% discount to the 2004 and 2007 despite outscoring them 93 to 92. The 2006 scores a lofty 98, fully justifying its premium to the other off vintages.

Haut Brion:

What have we here? An on vintage leading the way, and a moderate scorer (95 pts) at that. Nor can we argue it has just been making up for previous declines, its 5 year performance eclipsing all the others. But of course, it is very cheap, in absolute terms, for a first growth on vintage. There are those who would argue the status of the 2003 vintage, and not unlike the 2008 it does share characteristics with both on and off years, but most would suggest 2003 qualifies as an on vintage on the Left Bank. Once again we see the iconic 2009 registering barely a blip, so far.

In most market phases there are leaders and laggards, and it is possible to pick up bargains if you stay close to the action. What seems to us important, though, is that once the Liv-ex 50 picked up steam in March, it created enough momentum to allow the lower price off vintages, for the most part, to outperform.

We mentioned earlier the 2006 to 2011 period, and are inclined to add that at that time it was the entry of Chinese buyers which drove prices to very high levels. For the most part they initiated their spree by picking up lower cost wines of top producers, leading to the conclusion that brand was more important than absolute quality. After a while the market noticed that the off vintages had appreciated so much that there was little difference in price between the off and the on, which in turn led to a rally in the on.

Are we about to see a rerun of those heady days? Certainly Chinese participation has been somewhat muted over recent times. A return of interest from that quarter would certainly lead to the next leg of the current bull phase.