Economics

Wine Outperforms Gold & FTSE In 2017, With Burgundy Up 24% YTD

Annual summary of the fine wine market from Liv-ex.

  • Fine wine outperforms other indices including FTSE and Gold. The market remains cautiously optimistic.
  • Burgundy: best year in a decade.
  • Brexit: currency fluctuations impact fine wine market in 2017.
  • Broadening market: the number of wines trading on the secondary market continues to increase while Bordeaux’s market share declines.

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Market summary: cautious optimism

The market remains full of cautious optimism. All of the Liv-ex indices rose in 2017, but at a much more modest pace than in 2016. A fluctuating exchange rate is altering the level of demand for certain regions, with Bordeaux being particularly affected. The Fine Wine 50 – tracking the daily price movement of the Bordeaux First Growths – was particularly susceptible to exchange rate movement for the majority of the year, largely rising and falling along with sterling’s movement against the euro.

Despite gaining 5.3%, the industry benchmark Liv-ex 100 is the worst performing major Liv-ex index this year. In April 2017 it fell for the first time in 16 months. The current level remains 15% off its peak in June 2011.

Fine Wine Market In 2017

Burgundy leads the way

The Fine Wine 1000 – the broadest measure of the fine wine market – was the best performing index, rising 11.3%. It is currently at an all-time high level. Among the subindices the Burgundy 150 had its best year in a decade, climbing 23.9%. A large percentage of this price growth occurred in the second half of the year when demand increased as earlier reports of the small 2016 harvest in Burgundy were confirmed.

Both the Italy 100 and the Rest of the World 50 also outperformed the market, rising 13.2% and 12.8% respectively.

To put the performance of wine in perspective, Chart 1 compares how the Liv-ex 100 and the Liv-ex 1000 have fared against Gold and equities. Although wine has not been able to keep up with US equities, it has still outperformed both UK equities and Gold so far in 2017.

Fine Wine Market In 2017

Brexit: currency impact

Last year a Brexit bounce from the falling pound lifted prices. This momentum was carried through into this year until the Liv-ex 100’s 16-month streak was brought to a halt in April. This came as the pound strengthened and buying eased off in advance of the 2016 En Primeur campaign. Since then, month-on-month growth has been largely at the behest of currency fluctuations. Approaching the summer, the strong euro nudged the index up, before the pound strengthened in August and pushed the level down. Recently the resurgent dollar has supported an increased level of activity from Asian buyers who have been stocking up in anticipation of Chinese New Year.

Fine Wine Market In 2017

As chart 3 shows, this means that the market looks very different when viewed in other currencies. In 2017 it has risen 15% in dollars compared to just 2% in euros.

Fine Wine Market In 2017

The broadening market

Two significant milestones were broken in 2017. Bordeaux’s market share, which has been steadily falling since 2010, dropped to 68.5% - below the 70% mark. At the same time Burgundy’s yearly share of trade by value has climbed above 10% for the first time. It has reached 12.5% year-to-date, up from 7.7% in 2016.

Fine Wine Market In 2017

The fine wine market has continued to broaden with an increasing number of wines trading in the secondary market. Over the last year more than 4,500 different wines traded from 769 different brands. The previous year just over 4,000 different wines traded from 670 brands.1 There has been a 90% increase in the number of brands trading on Liv-ex since 2015.

Top performers this year

The top price risers from the Liv-ex 1000 are split across three regions. Increased interest in Barolo’s top producers is reflected in three wines made by Giacomo Conterno making it into the top 10, including the largest riser, the 2004 Barolo Cascina Francia, which has leaped 156.5% in price. Despite the Rhone 100 being the worst performing sub-index, certain older vintages, including Guigal Cote Rotie Mouline 2000 have increased dramatically in price.

Within Burgundy investors have started to follow winemakers rather than vintages. Given the scarcity at the top end of this market, any additional demand can have a large impact on price in the secondary market, as has been the case this year with the wines of Armand Rousseau, many of which have gained over 50%.

Fine Wine Market In 2017

What to expect in 2018

2018 will be an interesting year for the wine market. Liv-ex expects the market to continue to broaden as a greater number of merchants trade an ever increasing number of wines. Nevertheless, there are three key unresolved issues that will influence how prices develop.

One ‘known unknown’ in 2018 is how the market will adapt to the changes taking place in wine criticism. With Neal Martin leaving the Wine Advocate to join Vinous media in February 2018, the issues surrounding Robert Parker’s succession have re-opened. It was clear enough in the aftermath of Parker’s retirement that many were willing to follow Neal Martin, due to his association with Parker’s publication. Now that Martin has moved on, will market prices continue to be influenced by his scores, or will a number of different voices become more important? This is a particularly contentious issue that will play out in the background of the 2017 En Primeur campaign.

Second, sterling volatility is expected to continue as the Brexit negotiations progress. This will influence the levels of demand from dollar/euro buyers and ultimately impact on price growth. Currency volatility is less of an issue for regions where demand sees no signs of slowing down, such as Burgundy. Already market participants are starting to wonder if a bubble is forming here, as it did in Bordeaux earlier in the decade. Piedmont, a region undergoing rapid price discovery in the secondary market, will be another area to watch closely.

Third, as is usually the case, the Bordeaux En Primeur campaign in the spring will determine market sentiment for the remainder of the year. The quality of the wines is not expected to match the previous two vintages; therefore release prices are expected to fall. At the same time, given the frosts that affected the growing season, a much smaller crop is expected. A reduced volume of wine will be released to the market, coinciding with the recent trend for Chateaux to withhold stock to support prices. An overpriced campaign with suppressed volumes could turn sentiment in a market that has made steady progress in 2017. On the other hand, a sensibly priced campaign that releases the wines in decent volumes at an attractive discount relative to the secondary market will boost confidence.

Conclusion

While some groups of wines – particularly those from Burgundy – have seen steep price rises, others have increased more slowly. The Bordeaux First Growths, importantly, have been among the latter group. Given their significant trade share, their performance in the next 12 months is likely to influence the market’s direction significantly.

As this report has highlighted, the fine wine market remains steady and the Liv-ex 100 has even outperformed other indices including FTSE and Gold this year. Optimism therefore remains the prevailing sentiment.

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About Liv-ex

Liv-ex operates the global marketplace for fine wine. Its exchange, data and logistics services help merchants to transform their fine wine businesses.

Liv-ex was founded in 2000 by former stockbrokers James Miles and Justin Gibbs. The growth of the internet provided them with an opportunity to bring together a fragmented marketplace and make fine wine trading more transparent, efficient and safe. Today, 400 merchant members from 35 different countries trade on the Liv-ex exchange. Liv-ex is independent: it does not hold stock or deal with private clients.

Liv-ex’s fine wine indices are quoted by Bloomberg and Reuters. The Liv-ex Fine Wine 100 – composed of wines from eight different regions – is recognised as the industry benchmark. The broader Liv-ex 1000 index tracks 1,000 wines from across the globe and its performance can be broken down by region.

Liv-ex is the largest, most comprehensive source of historical and real-time fine wine price data. It provides access to the 40,000 price changes that occur in the market every day, including live bids and offers, transaction prices, merchant list prices and auction hammer prices.

Website: www.liv-ex.com

Blog/market analysis: www.insights.liv-ex.com

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