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The First Growths vs. the Rest: Is the Fine Wine Market on a Knife Edge?

2016 was a phenomenally volatile year with seismic shifts in the socio-political spheres; this characteristic also held true for the fine wine market. An event (Brexit) prompted a remarkable comeback in the fine wine market whereby prices grew robustly and consumer and supplier confidence improved. However, are we now witnessing a downturn in the market and are the wine price increases that we have experienced since July 2016 coming to an end?

Smaller gains, and market slowdown 

The below graph perfectly depicts the huge and sudden price increase in July 2016, though it also simultaneously paints the price spike as an anomaly. The good news is that since July 2016, the fine wine market has seen price increases occur month-on-month; however, the market has experienced smaller and smaller price increases since. Though when we focus on First Growth Bordeaux in relation to the market, we start to notice some telling information.

first growth price performance vs market graph

What we can see is the fine wine market severely slowing down in December 2016 with only the First Growths (i.e., Lafite, Mouton, Latour, Margaux, Haut-Brion and D’Yquem) and the Liv-Ex 100 Index (i.e., the Top 100 wines worldwide) achieving 2.67% and 1.35%, thus returning to above average price growth (1.26%). Whereas, the Liv-Ex 500 Index and Liv-Ex 1000 Index went from an above average price growth in December (1.03% and 1.02%) to below average price growth in January 2017 (0.68% and 0.33%), indicating a declination in price growth.

In January 2017, prices significantly improved for a very concentrated pool of wines, with First Growths being the best performing wines in terms of month-on-month price growth. January’s price increase was largely fuelled by the, albeit disappointing, Chinese New Year and would have skewed the price growth rates.

Market risk and potential downturn

Though it may come across as positive that there is still growth present in the market as a whole, and it well and truly is, however, it can be countered with the fact that January 2017’s price growth was 70% less than July’s! This leaves one to wonder whether February will see similar downward price growth – February will be telling.

In sum, the highs of July 2016 were an anomaly, regardless of how impressive, and those highs have not yet been seen again since. Although prices do not conclusively look as though they have started to decrease and regress, it does appear as though prices are increasing at a more sustainable rate and have hit a maximum price increase that the market can ‘stomach’. However, the worrying element is that the market as a whole is showing potential signs of weakness, and this is what we’re witnessing from the Liv-Ex 500 and the Liv-Ex 1000 indices.

Wines that sit outside the First Growths and the Top 100 wines are seeing price increases and price growth come down, while wines that sit inside the aforementioned categories are seeing the bulk of the growth. This factor does not fuel confidence for the long-term sustainability of the fine wine market as a whole, should this trend continue. In fact, this screams of an extremely concentrated market wherein the performance of the entire wine market is hugely dependent and over-reliant on a small pool of top wines which are considered as the crème de la crème, signalling a high level of market risk.

So, are we witnessing a downturn in the fine wine market? No, not yet, but there are early signs that flag up this possibility. Are the price increases that we’ve seen since July 2016 coming to an end? In short, yes; the tide is turning for the market as a whole and price increases seem to be coming down, though this does not hold true for the Top 100 & First Growths, which are still witnessing further growth. However, there is uncertainty about how impactful the Chinese New Year was on the market – in regards to the size of the price increases – and as a result, time will tell – we should look to February for further clarity as to whether January was also an anomaly.

So, what should we do?

Buy, hold and/or sell wine? The classic conundrum. I see this as the perfect opportunity to re-evaluate your wine portfolio and devise a strategy wherein you perform a combination of buying, holding and selling wine. Our online Wine Valuation tool will guide you on your wine portfolio’s overall value, and how much each individual wine is worth. However, if you are an investor with long-term wine investment horizons, then get in touch as we are offering clients with investment grade wine stock a monthly analysis and valuation of their portfolio, completely free of charge. This report will arm you with the performance information required, enabling you to make an informed decision on your wine portfolio. On a side note, some are – and many others should be – aware of the time factor when making decisions – the longer you wait, the greater the risk.

About the Author

Burhaan joined JF Tobias in August 2016 and is our  Data & Systems Analyst – with his professional interests being big data and information systems. Prior to his current role, Burhaan filled several positions in Investment Banks, working in analytical capacities within regulatory environments. Graduating from Economics in 2014, Burhaan holds interests in philosophy, sociology and political economy. Besides work and academia, Burhaan enjoys sport, predominantly amateur boxing, rock climbing and swimming.

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  • A Guide to…Wine Tasting

    A wine tasting is one of those events that either fill people with joy or dread… or perhaps a healthy alternation between the two for trade-folk. Joyous or quaking with fear, it is undeniable there feels like a lot of social pressure around a event that essentially allows us to try something we like, or indeed might like.

    But why? It all boils down to confidence – the wine world can appear full of pretentious rituals and arm-waves, how can you possibly affect the right glass swill if you haven’t grown up on an châteaux estate; or spent a lot of time with people who have. Luckily things are changing, and an informal wine tasting should be seen as being a good symptom of this change. With events popping up all over the country, from the more serious to light-hearted; an increasing amount of shops heralding enomatic wine tasting machines and the good old world wide web making it all the more accessible, the wine world suddenly feels like a far more democratic one.

    However, it does help to have a few things in mind, an internal set of pointers if you will, before skipping into the room, head held high. Herewith a few suggestions that we feel lend to a more enjoyable and productive wine tasting experience…

    Remember you’re there for YOU. Yes, you. Whilst it’s important to talk to others and listen to any experts who might be lurking around, how you taste wine, and even why you’re there, is all ultimately very personal.

    Enter with an open mind… maybe you know what you like, maybe you don’t, the important thing is to try as much as you can, especially anything new or rife with preconceptions. This is best way to educate your palate.

    Talking to people makes the whole experience all the more worthwhile, and infinitely more enjoyable. Find the hosts; let them know what you like and listen what they suggest. Are there any sommeliers? They’re there for a purpose: to help and guide. Chat to fellow tasters. It’s interesting and there might be something that you’re struggling to define that they just so happen to have pinpointed. It also helps find personal descriptors for wine terms that might have previously felt a little too arm-wavy for comfort.

    Nibble away. Empty stomachs at a wine tasting are a dangerous thing; no one wants to be the one who trips on their shoe, launches into a table of glasses and upturns a plant pot for good measure. (Although if this does happen, it makes for a great story). The food is also there for a purpose (and that’s not to line empty stomachs. Eat before) – to cleanse your palette in between different wines. Tastebuds can be susceptible to influence too, so do your best to keep them fresh.

    Drink water too. Not expecting it to turn into wine, but to keep everything fresh, and hydrated. Your tastebuds, notes and head later on/the next day will thank you. And it rinses your glass.

    Make notes. However you like. They’re for your own recollection and development, not anyone else. Perhaps take pictures of labels. Number them off in your notes. Gone are the days where labels had to be soaked off into scrapbooks, let your smart phone be just that.

    Take your time. There’s no point in blustering in, gulping down and exiting… First off there’s far too much glassware around for that kind of behaviour, but also there’d be no benefit to you – to really taste a wine takes time, and checking off of the senses:

    First – LOOK. What colour is it? how viscous (thick) is it? can you glean any initial smells without moving the glass?

    Then – SWIRL. Start of slowly and see how the wine moves. Are there any legs? (residual wine on the inside of the glass that dribbles down a bit like brandy sauce on a Christmas pudding) Swirling in itself can feel a bit of a rigmarole, but you don’t need to necessarily have the perfectly attuned flick of the wrist. Swirling is designed to open out the wine, to release aromas and let it breathe a bit more before it’s sipped upon. Keep the bottom of the glass on a flat surface if need be and move its contents as you choose. Smell again and notice any difference; how has it opened out and is there anything it reminds you of?

    After, and only after – SIP. Let those smells move into your mouth…Do they grow into something else? or close off slightly? Play with the wine in your mouth, swill it around, and carefully breathe air in through the wine. There should be no tastebud left untouched. Try without the swilling and breathing. Notice the difference?

    Now comes the conundrum: to swallow or not to swallow, that is the question. Well, the good news is (noble musings notwithstanding)… it doesn’t matter; you choose. Want to drink the wine, then do (mindful of how much you’ve already drunk and how long you’re going to be at the wine tasting for)… Or rather spit, then do. Spitting is traditionally how the trade operate as this is their job, and they might be off to another 2 or 3 tastings that day alone and need to keep wits and energies up. As a consumer, you decide depending on how you feel (and maybe how delicious the wine is, sometimes)… Just keep a bit of a tab on things and remember when you last ate.

    Holding your glass. Now this can feel weighted in social norms – how to hold, where to put (especially when taking pictures and notes), do I need to keep hold of the same glass, even? All of these concerns are valid, but for the most part become apparent from wine tasting to wine tasting. Sometimes you’ll be encouraged to keep hold of your glass, sometimes you won’t. And there’ll always be some sort of surface to place it down on either way. The important thing is when it’s in your actual hands, hold it properly by the stem. Holding by the bowl not only makes it dirty, but also changes the temperature of the wine. The stem also makes for an easier swirl. Self-styled as it may be.

    So there we are – go forth and taste! With a view to expanding your knowledge, moving out of a few comfort zones and meeting a few like-minded souls. Who knows you might even enjoy it, and if not, learning something new can never be a bad thing.  Especially when the finer juice of the grape is involved.

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