The Long Term View
The wine market has been challenged like any other following the widespread disruption caused by Covid-19 but depending on your outlook there remains plenty to be optimistic about.
When trade started to slow down the obvious knee-jerk reaction for sellers was to lower their asking prices to stimulate trade. This has softened prices across the board and we have watched Bordeaux’s share of trade slip to record lows in recent weeks.
The chart above shows how sellers have reduced their asking prices in order to stimulate sales. There is a defined increase in the level of discount relative to market price since lockdown took effect in March. Justin Gibb, co-founder of Liv-ex was quoted last month stating “It was a market struggling to go anywhere and feeling a bit tense” but went on to add “Now we’re in April and the market’s reasonably steady.”
While it may be true that trying to offload premium Bordeaux at a good price is tricky at present, wine is a long term market that will no doubt bounce back. The other side of that coin is the opportunity that lower prices can offer to buyers, those with a long term view and confidence in the market could take advantage of current prices to strengthen their portfolio.
Those able to weather the storm may choose to hold or even capitalize on buying opportunities. But for most, keeping turnover ticking over will require lower prices and the opportunity to reinvest in stock at the new level.
The wine market is constantly evolving and many regions that offer a similar quality of wine to premium Bordeaux but at a lower price point have been thriving. Regions such as Napa Valley, Tuscany, Piedmont and Rhone have benefited from this and will now be familiar to most of active wine investors. We are beginning to see the price gap between these regions and Bordeaux narrow, as buyers and sellers acknowledge the opportunities that can be found elsewhere.
This was confirmed at the end of the first quarter when Liv-ex released details of best price performers. Half of the wines on the list were Italian, three were from Rhone and one each from Burgundy and Spain. Bordeaux did not make the top ten list but remains and integral part of the market with the largest share of trade, albeit at record lows for the region.
Italian wines in particular have continued to take big strides after securing the top spot in Q1. Recently Italian wines hit another record high in trade by value, securing 27.7% of trade, up from 19.5% the previous week. Californian wines have also held steady on the secondary market, particularly at auction where top flight Napa, including Screaming Eagle and Harlan Estate, has remained in demand commanding respectable prices.
The market for Bordeaux remains solid, accounting for 24% of both the dollar amount and bottle count sold. Champagne, California, Rhone and Italy combined for 18% of revenue and the bulk of the rest of sales.
Acker, Wine Auction House
Although regular updates on the price movements of fine wine and the market are essential to keep in touch with the here and now, it’s important keep hold of the fact that fine wine has traditionally rewarded patience. Five years should be the minimum outlook to see satisfactory returns, and over this time span it’s hard to find examples of the market under-performing.
In a similar fashion to traditional financial markets, the type of trading conditions we are currently experiencing should be of interest to long term buyers, and the fact that the Liv-ex 100 has returned 205% over the past fifteen years should also offer some reassurance of the wine market’s ability to weather the storm.
By Enzo Giannotta