That Was The Year That Was …. Now To Look Forward!

As 2013 draws to a close, we thought our clients would like to receive a report on the global fine wine market conditions as we perceive them today. Disappointingly we have not seen Bordeaux prices bounce back in 2013 at the rate we had hoped - the ‘bounce’ certainly appeared to be on its way when Liv-ex indices grew by a percent or more for consecutive months during late 2012 and spring 2013.

However after another unsuccessful En Primeur campaign in May and June, during which the 2012 vintage was largely overlooked by prospective customers because of (too high) pricing issues, buyers lost confidence in Bordeaux and the market returned to a lethargic state this autumn and winter. During 2013 we had hoped to report a return to the ‘good times’ which we saw between the summers of 2008 and 2010 - or at least to the ‘normal times’ we saw during the period between 2005 and 2008. So we have been disappointed that Bordeaux has performed less well than we hoped since 2010.

We would emphasize once again that the fall in the market of June 2011 and the current lull - which has been more sustained than we anticipated - is in no way typical of the way wine has performed as an investment over the last five, ten, or even twenty years. In the last decade, the Liv-ex indices the Liv-ex 50 which is the most closely correlated to our client’s portfolios has out-performed the Hong Kong Heng Seng Index and Gold over the last decade. Despite the recent dip and hiatus, that remains the case please see graph. The normal times - and indeed the good times - for Bordeaux will return! The top Chateaux of Bordeaux remain the most sought after, and heavily traded fine wines in the world and it is important to note that despite the fall-off in prices, Bordeaux still comprises more than 70% of most major UK fine wine merchants turnover. There is no cessation in demand from drinkers and collectors of Bordeaux are just temporarily scared to buy at the levels at which they once were totally confident. This temporary fear is irrational - the great wines of Bordeaux are very limited supply luxury products, for which there is continually growing global demand.
 

Figures provided by Liv-ex.

 

However as sophisticated investors are aware, markets are shaped by investor confidence - or by fear. If a market is booming it becomes extremely easy to sell stock at the market price - which leads to price escalation. Meanwhile when there has been a drop in prices, or a lull, investor confidence drops and sales are harder to come by - and are often only achieved by discounting which leads to further price reductions. This quandary applies to the fine wine market as much as to any other market; but understood correctly this can work to your advantage rather than your detriment.

As one of the most prestigious wine merchants and an independent fine wine investment advisory, we urge you to take a contrarian view; be bold and follow the precepts set out by the 20th century’s great investors - men like Warren Buffet and Sir John Templeton who understood that the successful investor should:

· Avoid the popular: "to buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward."

· Buy during times of pessimism: "bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

· Hunt for value and bargains: "too many investors focus on outlook and trend. Therefore more profit is made by focusing on value. In the stock market the only way to get a bargain is to buy what most other investors are selling."

The maxims above all highlight John Templeton’s value-based investment approach. At times when others were buying, e.g. in the technology boom, he was selling, and vice versa. Of course there are other factors to consider when buying wine, just as there are when buying shares, but purchasing stock that is out of favour is a very rewarding investment strategy which has been successfully applied by many great investors - most famously of all, Warren Buffett. Who isn’t doing badly! So - we urge you to remember that buying when the market is low (as it currently is) is less, rather than more risky.

Our most successful investors have all had the courage to buy when the market was low and to hold their stock until the good times return. We strongly believe that it is a good time to invest in Bordeaux. We also exhort you not to be a pessimist and sell your Bordeaux now when the market is at a low - by doing so you will guarantee your own disappointment. Contrarily, now is a time to be optimistic about investing, or reinvesting in Bordeaux. At the micro-level which is Ganpei Vintners, we are equally at the mercy of market sentiment. When everyone is pessimistic about Bordeaux, we can buy great wines for you at low prices - if you are brave enough to be a buyer.

Enough about Bordeaux, It is a good time to buy Bordeaux and a bad time to sell Bordeaux. It is as simple as that. Finally we would like to draw your attention to a new category of wine investment being offered by Ganpei Vintners !

The tumultuous conditions over the last couple of years have fundamentally shaped a shift in our strategy. The previous objective to provide our clients with the highest performing and most liquid type of wine investment no longer supports our clients with enough of a hedge against the fluctuation of that particular type of wine. This is the reason why we are now beginning to offer wines from Burgundy, the Rhone, Champagne and Tuscany to our investors, as well as Bordeaux - the traditional staple of the wine investor. Put simply, worldwide appreciation for small production wines from other regions has grown to a point where we can now feel confident about their liquidity (a perceived lack of liquidity was previously the reason why we felt reluctant to offer alternative wine investments). This applies most specifically to Burgundy and the Rhone. Meanwhile Champagne and ‘Super Tuscans’ offer investors an alternate take on the traditional rationale for investing in wine: they are widely consumed, and being offered at lower opening prices than the top wines of Bordeaux. The wines of Champagne and Tuscany are priced at a point where drinkers and collectors alike feel confident - and continue to pop corks. We would never suggest replacing Bordeaux as the main component of a well-balanced wine investment portfolio, but would like to suggest that well selected wines from other regions can provide some degree of diversification and stability to your holdings. If you are interested in investing in Bordeaux while prices are low - or indeed if you’d like some Champagne, Burgundy, Rhone, or Italian wines to diversify your portfolio, please do not hesitate to contact us by email at sales@ganpei.com.hk or call us on 26151223 We wish you very happy holidays - and look forward to the New Year with considerable optimism that we will provide you with a better return in 2014.

With our very best wishes and a happy New Year, from all the team at Ganpei Vintners.