Wednesday, February 20, 2008

Is The Fine Wine Market Recession Proof?

Boris Guillome

With the subprime crisis flexing its muscles and the fear of recession now upon us, more and more investors have come to reconsider their portfolio choices. At the same time, It has been well publicized that some blue chip wines have returned incredible profits over the past few years. In 2007 alone, the index of the top 100 wines on the London International Vintners Exchange (liv-ex.com), an electronic market for fine wine, has gained 40.10 percent between January and December, outperforming the FTSE 100, which has risen by 3.8 per cent, and gold, which has seen its value swell by 23 per cent.

Will the return on investment last? Or will the economy’s downward spiral inevitably affect the fine wine market?

While seeking an answer to the above questions, it is important to realize that very few of the finest wines produced in the world (in any given year) are capable of investment appreciation. Therefore, no need to rush purchasing a case of the latest ‘wanna-be’ cult wine to finance your kid’s college fund…his chances of being admitted to an Ivy League school are much more likely than securing a profit on the latest “Winemaker Limited Edition Special Reserve Cuvee” to hit the market.

I think that some blue chip wines will not appreciate as dramatically in 2008. However, I predict that this will be outweighed by the majority of the top wines that will continue to display steady growth. Aside from red hot commodities such as the 2000 and 2003 Lafite, many 2005 Bordeaux futures are currently arriving on the market. Buyers are finally able to secure this highly anticipated vintage, raising the demand and driving prices up. Previous vintages of top Bordeaux wines are likely to follow suit.

Unlike past recession periods, the wine market has now become truly global, less sensitive to one country’s economic health. Many emerging market countries are now leading the demand and stretching the prices to new heights.

Another legitimate question is how reasonable are these prices? Like the housing market, does the wine industry needs a reality check too? Are we experiencing a “Wine Bubble?”
This may come as a shock to some readers, but I sincerely believe that many rare and fine wines are actually underpriced. While I couldn’t agree more that it has become more difficult for the average collector to actually drink these wines, the wave of new buyers are buying much like one would collect fine art that is relatively affordable. Referring to the excellent article published by Peter Meltzer in the Nov 30, 2007 Issue of the Wine Spectator : “More people can afford a case of Lafite 1982 than can afford $71.7 million for an Andy Warhol” …a reality leaving the wine market with much room for further growth.

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