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Is fine wine running out of gas?
The exposure on the Liv-ex Exchange – that is the combined total value of live bids and offers – has hit a new record high of £45 million this month but are there signs the market is starting to slow?
In a recent post, Liv-ex pointed out the new record and noted that the exposure on the Exchange had been rising steadily for the last 10 years.
However, it also pointed out that since mid-2014 when the fine wine market began to recover after several years of decline, the number of bids had outweighed the number of offers.
With more many bidders for fewer lots the exposure has risen as buyers compete with one another. Since January last year the bid:offer ratio has remained above 1. Any ratio over 0.5 is regarded as a sign of an uptrend in the market or of price stability.
However, while the number of bids is still larger than the number of offers, the gap appears to be inching closer together again.
It’s too early to say the market is about to hit the buffers but Liv-ex has also noted two other, perhaps tangentially related phenomena that are of interest.
The first is the news that the Fine Wine 1000 index suffered a (minor) decline in September, the first in 22 consecutive months and the Fine Wine 100 has had a couple of months of ups and downs since late summer.
The second is that the Fine Wine 50 which tracks the first growths appears to have taken its foot of the gas this year after a rip-roaring 2015 and 2016.
The index gained 26.7% last year but has gone up a mere 4.2% so far in 2017.
The overall performance for both the first growths and fine wine in general remains positive overall, the market has, “not switched into reverse”, noted Liv-ex.
Margins are so small that everything could be reversed by a strong October performance but it’s possible that fine wine will glide rather than zoom across the finish line come the end of the year.
A bubble waiting to burst? Maybe the realisation that these prices can come down and not just up is beginning to dawn on some investors!
Isn’t the whole point of investment tied to profit? As the profitability diminishes, so will the market. What we are seeing is the difference between collectors, and investors.
In a way, this doesn’t surprise me, especially since prices for even first-growth 2005 and 2010 vintage Bordeaux have remained modest, inducing investors and collectors alike to buy either en primeur or by the case in-bond. Based on a conversation I’ve had with a sommelier in a local wine shop, who is a Burgundy expert, he also mentioned that various prime vintage Burgundy pinot noir in both premier cru and grand cru growths are in a bit of a price bubble. What needs to happen if the Liv-ex is to survive is that the Liv-ex 1000 and 100 needs to diversify its holdings from mostly grand cru classé Bordeaux and particular Burgundies, to a diversification in holdings from Barolo to Brunello di Montalcino, and an increasing number of Tuscan superstars. This diversification in the Liv-ex will provide stability that will encourage wine investors to invest in greater numbers in different holdings, while collectors can buy wine in greater numbers, influencing a rally in wine values in the short and long-term.