Fine Wine Market Update Sept. 2011

After a slow start in April the Bordeaux 2010 En Primeur releases picked up in mid June and rolled on to a 1^st Growth crescendo by the end of the month. After initial fears of a stilted campaign due to the erratic release programme, armit experienced a campaign where sales were almost on a par with the 2009 sales and while a few customers balked at some prices, on most wines it was a battle to get enough stock to satisfy demand.

2010 prices again led to a surge in investment in back vintages of 1^st and 2^nd Growths as well as the eagerly sought-after Pontet Canet and Lynch-Bages.
Trade has, as usual, slowed in August and there has been some softening of prices but this is not unusual and as people return from their holidays and the Asian market buys in the approach to the annual Moon Festival in September we can anticipate renewed activity on the market.

There has been much turmoil and unpredictability on the stock markets and this has resulted in more people than ever seeking to diversify their portfolios.
In times like these it is clearer than ever that most investors see fine wine as a safe haven when the markets are in turmoil

Early Spring brought about a directionless period for the fine wine market as Merchants prepared themselves and their war-chests for the 2010 En Primeur campaign. The Stock Markets of the world by contrast rallied from the doldrums of the New Year and reached year highs. Oil and Gold also saw growth. A slow start to the 2010 campaign meant that merchants began to pick up value in the back vintages pushing the market higher during April to June. The index broke new ground, growing by 1.7% to 5.6% on the year.

In the wider view, worries of defaults and more Euro zone troubles have been the driving factors in the economy of late. For months, Greece's debt problems have caused headaches for the heads of Europe's governments and investors alike, however this particular issue has been temporarily put on hold with the recently agreed bailout package. The eyes of the financial world shifted their focus to the US debt ceiling, wondering whether the politicians on Capitol Hill would allow the default for their own political gains; a very high stake game but in the end more pantomime than poker. To have allowed the US Treasury to default would have been a disaster. After all, the US sets its own legal debt limit, and being an election year, the issue became almost irrelevant.

Gold as a result has been climbing steadily throughout July, related to the lack of confidence in the Euro and US Dollar. At the week ending 29^th July, Gold was trading at around $1614/oz (roughly £1002/oz), which signifies a rise of about 1.2 % on the month and 9% year on year. The charge slowed and moved back from its highs of $1625. Described by Warren Buffet as the ultimate bubble, will Gold see the violent price movements of the 70s?

The Liv-ex Fine Wine 100, the fine wine industry's leading benchmark, moved down 1.56% to finish July at 359.01; the trade's summer exodus and profit taking the most likely causes of the July gloom. Despite this, the index is up 6.76% year to date and 19.30% year on year.

Armit Index Comparison to end July 2011 (All values taken on last trading day of the month and price in local currencies unless specified.) Source: Liv-ex.com

The Bordeaux 2010 campaign can be summed up in one word: controversial.

Here is an overview of what happened:

Déjà Vu - The release of an extraordinary vintage back in early spring 2006 came with an unprecedented hike in fine wine prices for En Primeur Bordeaux. Back then, everyone thought that prices at this level would be unsustainable. With expensive newly released wines on the table, investors turned their attention to another star of the decade, the 2000 vintage. Suddenly, these previously "pricey" wines offered great value.

After being labelled expensive for the last five years, the 2005 vintage is now back on investors' lists. Following the first few weeks of the Bordeaux 2010 campaign and with it a good indication of 2010's price level, trading of 2005 wines became buoyant. In July 2011 four of the five major market movers were wines of 2005, including Montrose, Pichon Baron, Ducru Beaucaillou with the wine market's "flying fifth" star Pontet Canet in the lead.

Conversely, prices of 2000 and 2005 didn't move at the same pace of other vintages before April 2011 (20% and 15% respectively, seen in the chart below). During and following the Bordeaux 2010 campaign, it became clear that wines from 2005 offer great value for money compared to other vintages.

The below Liv-Ex graph indicates how prices for 2009 and 2010 1st growths compare to their 2005 equivalent. However, as the list of July's major movers indicates above, the bulk of trading is represented by other classified

Despite static prices for the second wines of First Growths (Carruades, Forts de Latour, Clarence Haut Brion, Petit Mouton and Pavillon), there are excellent opportunities with similar wines by the lesser châteaux.

Before highlighting the most promising second wines of the prominent 2nd - 5th growth châteaux, let's focus on the success of second wines of First Growths over the last few years, where it has become clear that vintage variation and scores have little effect on price. While the price tag on Lafite's first wine is around £21,000-£22,000 (RP 98+) for the excellent 2000 vintage and £8,000-£8,500 for vintage 2006 (RP 97), we can buy Carruades at almost the same price level, £3,800-£3,900 for both vintages (RP 90 for both). Les Forts de Latour is another example, with both the 1998 (RP 88) and 2000 (RP 90) on the market for the almost identical price of £2,200-£2,400 per case. What is the explanation behind this apparent insensitivity to vintage and score variations?

It is linked to the recent trend of brand focus generated by Asian buyers. While the first wines of these châteaux are still much more vintage sensitive, the success of the 2^nd wines is mainly due to the fact that these wines are also made by the same "great château" but at a much more affordable price. As they play the part of the next best possible alternative to the Grand Vin buyers mostly honhatentrate on the label and not so much on the vintage. Equally, these wines play a brilliant role as substitutes when it comes to drinking. It's cheaper to impress with 'Little Lafite' than with its big brother.

With the first wines of second growths climbing over £1000 per case we can find some great value wines among their second labels. Croix de Beaucaillou, La Dame de Montrose, Chapelle de la Mission, Reserve de la Comtesse and Echo de Lynch Bages are all extremely affordable at around £200-£400 a case. Chapelle de la Mission is slightly more expensive (average case price is around £500-£600) but with its 2010 release price around £1,100, back vintages are exceptionally good value.

To see our availability of second wines please see our Fine Wine List here

* source: Liv-Ex - average price of vintages 2004 to 2008 for each wine as it was in June 2009, and as it is today

With such a buoyant Bordeaux back vintage market, we are happy to hear from you if you have wines from any years from the last couple of decades. While traditionally great vintages normally sell faster if the price is right, there is always a less significant year which suddenly becomes very good value when compared to price increases on other vintages.

We would also love to hear from you if you hold any great wines from Italy. As UK agents for some of Italy's most renowned producers, we have a wide clientele with a passion for great Italian labels. With the festive season approaching, we would love to offer an extensive selection of mature Italian wines on our Fine Wine List.

If you would like to sell your wines please contact the Reserves Team at reserves@armit.co.uk who will be happy to advise you further and provide a market valuation.

We have added our recommended drinking dates to your Reserves Statement. If there are any wines approaching the end of their drinking window, then we advise you to take delivery of these as soon as possible, or sell them through our broking department.

1997 – Charming and accessible in style - those still sitting on their 1997 Red Burgundies should think about drinking them.

2000 – Soft and easy and drinking beautifully now.

2003 – The 'heat wave' vintage – some of the better wines will be longer lived, but many 1er Cru and villages level wines will provide good early drinking.

According to CIVB's data, sales of Sauternes wine to Hong Kong and China rose by 50% in 2010. To put this in perspective, sweet wines accounted for 0.2 – 0.3% of all Bordeaux wine imports to HK/China. The Canadian government was also pleased to report an increase of 25% in wine exports to China, with 52% of total wine exports being ice wine (in 2008, 6 of the top 10 importers of Canadian ice wine were Asian countries!). In September 2010, the International Organisation of Vine and Wine (OIV) reported the official lifting of the ban over direct importing of Sauternes and other sweet wines into China. This ban was previously in place because these wines contain more than 250 mg/litre of sulphur, which was the Chinese official limit for all wines, regardless of amount of residual sugar. In March this year, Château Guiraud announced the opening of two temperature-controlled cellars in Shenzhen and Hong Kong, to ensure the direct importing of authenticated products.

China remained the number one topic for the Bordelais at Vinexpo this year. The performance of Canadian ice wine exports would indicate that the Chinese nation could be in progress of developing a 'sweet tooth' for the heavenly nectar. Chinese desserts are rarely highlights at meals or banquets and when they are, they are normally health-inducing concoctions made with fine and rare ingredients, and they are rarely sweet. The classic matches of Sauternes or other sweet wines with desserts, cheese or foie gras would be lost in translation though. However, fear not! Château Climens has been leading the way to match Chinese dishes (deep-fried prawns in Sichuan spicy sauce, steamed crabs in Huadiao spirit or crab roe and meat with glass noodles come to mind...) with Sauternes. The match of intensity and richness is classic and the sweetness of the wine brings out the savoury character of the food. Based on my conversations with a Chinese wine lover/collector based in Shanghai, it seems that the popularity of Riesling with some residual sugar (Spätlese/Auslese) is also on the rise, especially with female drinkers. I doubt Sauternes and other sweet wines would ever take the place of prestigious first growth red Bordeaux at banquets and VIP dinners, but there seems to be no lack of interest in the liquid gold.

Could Château d'Yquem be the next Château Lafite in the wine investor's portfolio? Perhaps not yet, but it is not totally inconceivable that the prices of Sauternes/Barsac could rise from the relatively modest prices now. The opening En Primeur price (quoted in 12x75cl) for Château Lafite 2010 was around £12,300 per case, compared to £4800 for Château d'Yquem, £860 for Château Climens and £295 for Rieussec (from the Lafite family). Having a sweet tooth isn't so painful after all!

It is rumoured that Chinese wine lovers have developed the taste for a new 'beverage' called 50/50: half Lafite and half Yquem. While this may not be a mainstream development, this could indicate an interest in the right direction...wine education and marketing by châteaux and estimates would show us the way!

Some 'must-have' recommendations for the ideal wine collector's portfolio: 1990 Yquem (RP 99), 2001 Climens (RP100), 2001 Yquem (RP 100), 2006 Yquem (RP 96 – 98+), 2007 Yquem (WA 97), 2007 Climens (WA99+), 2009/2010 Yquem (WA 96 – 98), 2009 Climens (WA 96 – 98), 2003 Doisy-Daëne L'Extravagant (RP 99) and 2009 Doisy-Daëne L'Extravagant (WA 98 – 100)...plus Tokaji Eszencia and the best Beerenauslese and Trockenbeerenauslese from top German/Austrian weingüte.

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