A sense of déjà vu has been the overriding feeling from wine investors over the past 12 months. This has been largely thanks to last year’s sharp correction in fine wine prices which sent the Liv-ex 100 Fine Wine Index plunging a fifth in the second half of 2011.
To many it was a virtual return to 2008. Once again the cause of the correction were not difficult to ascertain. On the macro front, recession, stock market volatility and the Eurozone crisis were all factors. But the final tipping point was the First Growth prices, which had shot up out of control afer a two year bull run, during which the Liv-ex 100 index had risen by a staggering 76 per cent.
Much of the price increase had been driven by soaring Chinese demand, led by Chateau Lafite. By the middle of 2011, the slowdown in the Chinese economy coincided with the concerns that prices had already overshot demand. This was especially true in Hong Kong, where the retail and auction markets for First Growth claret had become saturated.
A mishandled and aggressively priced 2010 primeur campaign also did the Bordeaux markets not favours. Instead it only fuelled resentment and accelerated a feeling of “First Growth fatigue.”. As the market turned from July onwards, investors and collectors become increasingly spooked, the only question was how quickly and by how much prices would recoil.
Inevitably, recent vintages of Lafite took the biggest hits. Having traded at a premium of 129 per cent to its fellow first growths, some vintages, such as the 2008, slumped by 45 per cent. Latour, Haut Brion, Margaux and Mouton fared less badly, but they too suffered dents o their pride and prices.
Some had seen the writing on the wall. Most obviously, several funds had already move quietly out of Lafite. Merchants also sought to reduce their stock levels from the last summer. But many new investors and speculators were caught unawares. After two years of snapping up First Growths in a rapidly rising market, many were equally keen to off load them as the waters subsided.
Fortunately, the market had learnt some lessons from 2008. This time many investors, traders and fund managers, kept their nerve and the sell-off was nothing like as disorderly and panic stricken as before. Nor was there the same level of redemption from the funds.
But the correction was serious and prolonged . In the final six months of 2011, the Liv-ex 100 fell 21.5% to the end of the year on 286 points – a year on year drop of 15 percent.
It wasn’t all bad. Some second-line chateaux benefited from the flight and performed extremely well, even managed to finish the year on a more positive note. These included the increasingly fashionable Beychevelle, Pontet Canet, Lynch Bages and Pichon Baron.
However if Bordeaux took a step back in 2011 the ultra-fine burgundy made a huge stride forward. The latest phenomena was as a result of new demand from China. Top of the shopping list was Domaine de la Romanee Conti (DRC) which quickly donned Lafite’s mantle. Prices are up 19% on this time last year. Other Burgundy domaines were swept away in the frenzy, including de Vogue, Leflaive, Roumier and Rousseau. To some this was seen as a broadening of the market. Top Italians: Sassicaia, Ornellaia, Masseto and Solaia were also included.
Unfortunately both Burgundy and Tuscany are too small to satisfy the demands of the world market. It was would be too foolhardy to write off Bordeaux for too long. A little like the timeless “little black dress” which never goes out of fashion. Bordeaux is all about prices and if there is a perceived value they will sell.
By the end of January 2012 the market began to recover with buyers returning to the market. First Growths “off vintages” starting picking up at around £300 per bottle. This ws the first positive sings of an upturn since June 2011.
Allister Andrew of We Love Fine Wines predicted that prices would rise 10% by the end of the year. The rationale was that falls have generally been followed by strong returns for those returning at the right time. Cautious optimism was based upon new money flowing into the market and on two other factors. The first was Robert Pakers revised scores for the much heralded 2009 vintage which helped to boost prices. The second was a quick and well priced en-primeur campaign. Which was completed by the end of May.
Undoubtedly the time is right for certain stocks including a number of high scoring wines to show a revival. Particularly from vintages such as 1990, 1996 and 2000. Some commentators, the more bullish ones feel the market will rise between 14 to 18 per cent by the end of the year. A recovers such as this would be very welcome but only time will tell.