Fine Wine Market Update May 2011

The Fine Wine Market performed as expected at the turn of 2011 with the first 4 months of the year again dominated by Bordeaux trading. The highest demand was for First Growth Bordeaux, especially in January, however buyers started to seek out other, more affordable, investment opportunities such as Duhart Milon, Lynch Bages, Beychevelle, Clerc Milon and Cos d’Estournel. Following December’s crave for the more affordable vintages of 2007, 2004 and 2001, buyers were mainly seeking wines from 2006 and 2007 followed closely by 2008. Whilst these recent vintages generated the most interest, wines from 1996 and 1995 also saw an increase in demand by mid-February.

January saw a strong performance on the charts, both by volume and value, which was followed by a quieter February after the celebration of the Chinese New Year. Despite a shaky couple of weeks at the beginning of March, Liv-Ex recorded robust trade in the final weeks of the month. As a result, the site’s benchmarks recovered and finished the year’s first quarter on a high. Due to a string of bank holidays, April was a quiet month with reduced trade on the wine market. Buyers also seemed to hold back whilst positioning themselves for the Bordeaux 2010 En Primeur campaign.

Three Hong Kong auctions over the last four months re-confirmed the continuing strength of the Asian market. First in the calendar was the sell-out Andrew Lloyd-Webber auction, where the wines effortlessly exceeded their estimate and grossed $5.6m in total. This was followed by the Acker Merrall’s two-day sale which, with over 1200 lots from various cellars, took a total of $10.8m. Last but not least was Christie’s March auction, which registered the sale of some large format top-end Burgundies alongside the usual great names of Bordeaux. The auction also illustrated the continuing trend for buying larger formats and older vintages. It is also interesting to note that the Acker Merrall and the Christie’s auctions both generated a lot of interest in the wines of Burgundy.

Auctions aside, while the most traded wines by volume were the recurring châteaux, a few non-Bordeaux but well-established brands, including Sassicaia, Leflaive, Cristal and Domaine de la Romanée Conti, also performed brilliantly through the beginning of the year.

At the beginning of the year we wrote about the quiet success of Italian wines on the fine wine market in 2010. There was steady demand for Italy's iconic estates over the year but without any significant price peaks. However, November witnessed increased trading of Sassicaia 2007 on the Liv-Ex exchange and the wine's impressive performance boosted the Italian trade's turnover up to 5%.

Sassicaia remained buoyant as the 2nd most traded non-Bordeaux wine in January - 16.1% of non-Bordeaux trade. While the market focuses on the wines of Bordeaux most of the time, the great Italian estates of Sassicaia and Ornellaia perform brilliantly but without loud fanfares as investment wines. As these two estates are cornerstones of our Italian portfolio, we have collated data from the last decade with the aim of revealing the current level of return had they been purchased en primeur. The two main figures we took into account for our analysis are the release price for each vintage and the best list price from Liv-Ex at the beginning of May 2011.

Both names achieved great prices across all years. The most recent vintages appear to be the weakest performers in the group, but these have only been trading on the market for a maximum of two years. Sassicaia 2002 represents 74% of return on investment, this despite the lack of good scores from the critics! The rest of the pack show fabulous numbers, in Ornellaia's case each vintage at least doubled in price and the profit of the best year - 2000 - is twice the amount of their initial investment. Sassicaia's figures are slightly more modest across the years but nevertheless extremely impressive - the 2000 vintage shows the best performance of the 20 wines in question.

It is also interesting and important to compare these wines to their Bordeaux counterparts. If we look at Ornellaia 2003 for example and a couple of great names from Bordeaux which have also traded for four years, the following pattern emerges: with the exception of Lafite, all 2005 First Growth Bordeaux doubled in price over this trading period while our Ornellaia 2003 has a higher profit:initial investment ratio.

Official release date is always 3 years after the vintage - i.e. vintage 2005 was released in 2008.

WA - Wine Advocate; NM - Neal Martin; WS - Wine Spectator; JR - Jancis Robinson; ST - Stephen Tanzer

Haut Brion performed fabulously over the first few months of the year and great value vintages are still available on the market. Some – such as 1990, 2000 & 2005 – received 98-99 points from Parker but still have a price tag around £6,500-£8,000 which seems reasonable compared to the heights of Lafite or even Latour. Other vintages for example 1995, 1998 or 2006 also received very good Parker scores – 96 points – but their prices are roughly between £4,000-£4,500. If we consider that Carruades de Lafite of the same years are offered on the market at slightly below these prices, 1^st Growth Haut Brion appears to present an excellent investment opportunity.

As investors continued to diversify, seeking good value wines other than the 5 top brands, the first part of the year also saw amplified trading on 2^nd Growth Bordeaux. A recent analysis published by Liv-Ex examines the ratio between averaged Parker scores and recent market values for all the châteaux in the group. The below table, which is featured in the article, clearly shows gaps between brands achieving similar scores but lower prices. Now seems a good time to capitalise on this scenario.

As the UK Agents for Ornellaia and Sassicaia we are looking to buy all vintages. Both of these Super-Tuscans have benefited from increased demand over the last 12 months and prices have experienced impressive increases across the board.

“Another amazing vintage!” This is the phrase we’ve heard many times from the Bordelais following the harvest of 2010. While speculation began earlier in the year about the impact this would have on the wine market, the quality of the new vintage was finally confirmed at the beginning of April, during the weeks of En Primeur tastings in Bordeaux. Buyers were faced with amazing wines in their glasses.

The critics, many of whom have already written their reviews, also confirmed the quality of the new vintage and warned that release prices would be at least at last year’s level, with predictions of some increase for the best performers and greatest brands. In the words of Robert Parker with a more pessimistic view: “Save for an unlikely meltdown of one of the nuclear reactors sitting directly across from Pauillac on the Gironde, I expect 2010 pricing to jump by 10-20% across all appellations...”

Parker also gives a quick comparison on 2009 & 2010:
“It is very obvious that the two vintages have contrasting personalities
2009 - sumptuous, thick, very rich and opulent wines that can be flamboyant, and vaguely related stylistically to vintages such as 1982 and 1990.....
2010 - massive, bigger-than-life in extract, huge tannins, alcohol levels 13.5-14.5% for the Medocs and Graves, and 14-15%+ for the right bank merlot dominated wines, possess remarkable density-probably closer to 2005 in style than any other vintage I know.....
The paradox is that 2010 is so rich and with record levels of alcohol, but reasonably high in acidity and lower PHs than 2009, which gives them amazing freshness and precision.....2009s will be more fun to drink at a younger age....”

So what are the key points to consider before the 2010 Bordeaux En Primeur campaign gets into full swing:
- Prices and their effect on previous vintages. Gauging this annual question precisely is pretty difficult. Similar prices to 2009 are predicted as a whole but some of the top brands – especially on the Left Bank – might come out with higher prices than last year. Whether this will stimulate the 2009 market making them appealing is difficult to tell. It will undoubtedly though make some of the older vintages seem like very good value indeed,
- More buyers – less wines. While yields are broadly similar to 2009 we also have to take into account the tendency of the châteaux to release fewer cases as 1^st tranche. Some châteaux might prefer to release an initial amount to the marketplace to test demand then react with a more “appropriate” price for the 2^nd and 3^rd tranche. Equally, an increasing demand for physical vintages gives the châteaux confidence to keep stock and release it years later. While supply slightly decreases, new buyers are entering the En Primeur scene. As the Asian market becomes more savvy, their buying habits change slowly from being mainly interested in physical stock to the idea of En Primeur’s investment opportunities. As last year, the US trade expressed high interest in the vintage, however they might face an expensive campaign with a weakening US dollar.
- Robert Parker scores. Always the last piece of the puzzle but still one of the most important. The scores are out and he certainly expresses very positive comments on the vintage – we included his 2009/ 2010 comparison above.

We would be delighted to talk through your requirements. If you haven’t already done so please register your email address in order to receive updates on all the wines as they are released or visit the Bordeaux page here.

It may not be too much of an exaggeration to claim that 2010 Bordeaux is on the minds of 90% of Chinese wine lovers and collectors, either living in HK or keeping their collections in HK’s much-sought-after quality storage space. Still recovering from the high prices of the then legendary vintage 2009 (and the associated limited allocations for top château wines), is Hong Kong now ready to embrace potentially higher prices for the 2010 vintage, which may be even better than the 2009? What we’ve been hearing here in HK seems pretty consistent with what the critics are saying, that despite the two vintages being in very different styles, the best in 2010 are very close to the quality in 2009, with some even surpassing it. Taking a survey amongst our clients, it seems that the really serious collectors already have their cheque books ready, but some Chinese wine lovers still prefer to buy physical stock with impeccable provenance, albeit at mostly higher prices, so that any uncertainties about pricing or availability have been eliminated through time. Having said that, investment-savvy members of the latter group have started to dip their toes in the en primeur pond because they too are beginning to see wine as much as an investment commodity, as a collectible item or “trophy asset”.

Profiting from the “shopping mentality” of Chinese wine lovers who prefer to buy wine that they can enjoy with their friends straight away, the businesses of various US and UK auction houses and well-stocked local merchants have flourished. A case of 1982 Château Lafite Rothschild cost just under £10,000 in 2006 and at the auction at Sotheby’s Hong Kong towards end of 2010, it fetched around £ 84,300 a case, almost double that of the current market value of around £45-48,000.

Lafite has definitely been dominating the top spot amongst the Bordeaux châteaux for Asian (Chinese) buyers. The other Châteaux have been working hard at catching up on the market share and sales of the other first growths (here we should also include Cheval Blanc, Pétrus and Ausone) are steadily rising, while there has been some recent softening of Lafite prices. The second wines of first growths have also benefitted from the hype and have sustained very strong demand amongst Chinese buyers. We believe that now is the time for some under-valued super-seconds to shine…..perhaps 2010 will provide just the right opportunity!

Fortunately, Bordeaux is not the only interest amongst Chinese wine lovers. Here in Hong Kong, the rarefied stratum of top collectors have been indulging in the ethereal delights (and the even more limited allocations) of Grand Cru Burgundy for quite a few years and the amateurs, especially those who started building their own cellars not too long ago, have taken to the very pleasing velvety texture and ripe cherry fruit of Villages and Premier Cru burgundies, which go so well with Chinese cuisine (which is not heavily biased towards big beefy dishes). The names of Domaine de la Romanée Conti, Leroy, Roumier, de Vogüé and Leflaive are sure-sellers at HK auctions. A case of 2001 DRC La Tâche that cost around £ 4,500 in 2006 is now around £11,000 in the open market and went for around £12,400 (including buyer’s premium) in the Sotheby’s auction on 2 April 2011 in HK. This goes to show that no obstacles can be too big in the pursuit for good wine, not even the rather complicated classification system in Burgundy or the myriad vineyard names, which most of the time are quite challenging to pronounce for the local wine lovers!

It has been quite encouraging to see a number of our clients taking to enjoying vintage and prestige Champagne, not just as a celebratory drink, but also a serious wine to go with their preferred dishes. The other region which we have always loved is the Rhône Valley and we hope that we will be able to have more Rhône wines available to offer to our discerning clients in future. From the hype of the La-La-Las initiated by Robert Parker, local wine lovers have discovered Chapoutier, Chave, Rayas, Clos des Papes, Beaucastel and Pegau and have latched onto their rather expressive bouquet and flavours, of the terroir and the grape varieties.

So have French wines dominated the local wine industry? Not at all, Hong Kong sees healthy sales of mid market to high end New World wines, mainly from Australia and New Zealand, and also California, Chile and South Africa. The high end wines from New World countries have also taken a prominent place in HK auctions, often featuring Screaming Eagle, Harlan, Coglin and Penfold’s Grange amongst others. Iconic and cult wines from other Old World countries are also featuring in the collections of serious wine lovers, such as Sassicaia, Masseto, Ornellaia and Gaja from Italy, as well as L’Ermita, Pingus and Vega Sicilia from Spain. Both these countries are eager to bring to Asia their lesser-known regions and yet even more obscure grape varieties to appease the insatiable demand for fine wine in Asia and there is no better place to start than in Hong Kong and China! Germany is also quick to catch onto the “fact” that Rieslings (dry or with some residual sugar) actually go rather well with Asian cuisine, even the spicy type! And so on...

In summary, the Hong Kong/China market is a fast-evolving market and local palates are becoming more and more sophisticated through tasting and education. According to 2009 statistics, China was the top non-EU export market for Bordeaux in terms of volume and Hong Kong was the number 2 non-EU export market for Bordeaux in terms of value……this is without taking into account purchases made by local buyers through UK merchants. While Bordeaux showed other wine regions the way onto the Chinese banquet tables, this is sufficient evidence that Hong Kong and China are very important markets going forward, not just for Bordeaux but also for the global wine industry!

Whether you are interested in older vintages or the new releases from Bordeaux, buying or selling, we look forward to discussing your requirements with you.

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