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Fine Wine Market History: Performance to Date

For all intents and purposes, the fine wine market should be a simple one to understand—a fantastic wine is produced in finite quantity, and, whilst being consumed across the globe, correspondingly appreciates in value as a result of its increasing rarity.

Of course, fine wine is not quite that simple, and neither is its market. The vintage, producer, and the wine itself are all contributing factors to its value over time. How successful was the vintage, and at what price was it released? These are winemaking factors, as much as the winemaker has a degree of control over them. And, whilst the fine wine market follows a boom and bust cycle, as we will see, this often starts and finishes with a successful and disastrous en primeur campaign. So was the case with 2005 and 2010.

Besides these factors, the global fine wine market is also influenced from outside. Anything from political decisions, to festivals in China, can shape its performance. It is no surprise that during the major upheaval of WWII, wine prices increased by more than 600% in a France under German occupation. They collapsed more than 50% at the close of the war.

If this is an extreme example from history, even smaller events within a specific country can shape fine wine market performance globally. If the annual Mid-Autumn Festival in China, where locals celebrate Thanksgiving at the close of harvest, is remarkable for the scale of technicolour festivities, it also remains remarkable for another reason. Demand for Mouton Rothschild 2008, and its wine label with a moon design by Chinese artist Xu Lei, saw a real increase in demand. And yet, prices remained flat; merchants were not aware of this spike in demand until after the fact.

As in any global marketplace, the number of factors that can influence the fine wine market are many. Another of these is currency exchange. At JF Tobias, we believe this to be the single most important factor driving fine wine market sentiment. When the pound strengthens, the UK market becomes more expensive to export markets, and prices consequently tend to drop.

Fine Wine Market History: Understanding Fine Wine Indices

When people talk of the fine wine market (or in fact any market) going up or down, performing strongly or weakly, turning bull or bear, they are referring to a market seen through indices. These work just like a summary of the market, by tracing the top stocks, or wine, within it. In this way, it allows us to build a picture of how a given market is performing.

Fine Wine Market History

Liv-Ex were the first to track indices within the fine wine market, and they remain the gold standard. Calculated according to a mid-price between the highest and lowest merchant transactions for a given wine, their indices remain a robust measure of performance.

Of the ones that Liv-Ex track, two are especially helpful. The first is the Fine Wine 1000, which tracks the top wines across the globe. Comprised of seven sub-indices (the Bordeaux 500, the Bordeaux Legends 50, the Burgundy 150, the Champagne 50, the Rhone 100, the Italy 100 and the Rest of the World 50), it is an all-encompassing measure. What this allows us to see, as well as in total, is how each region performs comparably. Burgundy can be seen to have made huge gains against Bordeaux, and risen recently to challenge its historical dominance.

The second is the Fine Wine 50. Working on the same principle as the Fine Wine 1000, it is even more select, simply charting the most heavily traded commodities in the fine wine market—the Bordeaux First Growths. This is the one we will be looking at in more depth.

Fine Wine Market History: 1970- 2000

Although wine has been traded as a commodity since the early 19th century, it was the 1970’s that was to really set the modern precedent for the fine wine market. Amidst globalization and a rise in global wealth, two major new players entered the market.

Both America and Asia became important emerging markets, and in an increasingly competitive and active market, the trading of fine wine took on even more of a speculative air. Bordeaux gained in reputation, and had an increasingly active secondary market.

Looking at 1970 to 2000, history suggests a fairly reliable boom and bust cycle, every ten years or so. The 70s are no exception, and instead stand out as a violent example. Between 1970 and 1972, Cru Classé prices increased by a staggering 400%, before crashing back to 1970 levels in 1974. Many of the top négociants were simply wiped out, whilst, in 1975, one particularly unlucky Londoner sold 2,000 cases of Mouton 1970 for £74 per case. Five years later it was £990 per case.

Fine Wine Market History

Fine Wine Market History: 2000s to date

Whilst prices have charted an upward trend overall since the 70s, several events have seen them lapse. Within a fine wine market more globalized than ever before, with new markets emerging within Asia, such as Singapore and Taiwan, challenging the dominance of China and Hong Kong, and renewed interest within European countries, such as France and Germany, the market is more than ever exposed to a greater range of influencing factors.

Events such as the removal of tax in Hong Kong, and the Chinese president Xi cracking down on gift giving amongst Chinese officials as part of a drive against corruption, have all helped to shape the market. However, three events stand out as the most influential. The collapse of Lehman and the following global financial crash in 2008, the huge fiscal stimulus in China in 2009, and the EU referendum decision in 2016. Indeed, these three have broadly shaped market performance.

Fine Wine Market History 2008: The Financial Crash

Following an incredibly successful en primeur campaign in 2005, the Fine Wine 50 saw gains of 159% until 2007, when it began to level out, before making steady gains to a peak of 170% in the summer of 2008. What happened next was arguably the worst global financial crisis since the Great Depression, and the fine wine market responded in kind, tumbling by 62%. Whilst representing a still healthy 102% increase for those who bought in 2005, for those who did so in 2007 or 2008, at market peak, will have experienced a sharp drop in value in the years following.

Fine Wine Market History 2009-2011: The Chinese Bubble

Following the financial crash, the Chinese government announced in 2009 a 4 trillion yuan injection of investment and fiscal stimulation for their economy. This was the trigger for the start of a remarkable bull market, with prices rising rapidly. As Chinese interest in fine wine (a popular gift between officials) began to peak, so too did buying sentiment grow progressively out of hand. The fine wine market climbed to staggering gains of 345% in 2011, against 2005.

Fine Wine Market History

With the release of the 2010 Bordeaux vintage at record highs, the strength of the market was put to the test. It failed; this was a bubble, and it burst. In the summer of 2011, the fine wine market saw the sharpest decreases in value since the turn of the millennium. In just over a year, prices corrected themselves, falling back from a 345% gain, to a 197% gain on 2005. This still represents a healthy gain for those who bought in 2005, and held through the peak before the financial crisis and the Chinese driven boom and resulting bubble. Those who bought en primeur in 2010, at market peak, will only have witnessed their wines decrease in value.

Fine Wine Market History 2016: EU Referendum

Whilst the fine wine market remained reeling for close to 5 years, political events were swirling in a way that was to culminate in events leading, finally, to a rally. In June 2016, the UK voted to leave the EU.

Buoyed by the prospect of a pound that collapsed overnight, overseas buyers seized the opportunity, and entered the market in an almost frenzied capacity in complete confidencee, as all UK stock became cheaper. A major UK trade platform had to suspend live trading at 11am, as all stock essentially became discounted by 15%.

The result of this was an immediate increase in market performance and prices, as the market became increasingly active and competitive.

Fine Wine Market History: Where Are We Now?

Since 2016, prices have remained steady, with the market making small gains as we edge ever closer towards Brexit. Indeed, it is this that poses the most immediate threat to the fine wine market, and at JF Tobias we have witnessed clients respond in kind, looking to release equity tied up in portfolios or collections, whether that be through investment, or simply wines accumulated over the years.

Whilst the fine wine market should be a simple one to understand—a wine is produced, consumed across the globe, and correspondingly appreciates in value—we can see that in reality, it is not quite that simple. Whilst the fine wine market has performed well from 2000 to date, it has really been a question of timing over when to enter the market. Avoiding buying at market peaks has been key in avoiding losses in the otherwise strong performance of the fine wine market.



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JF Tobias