Is the economic outlook starting to affect fine wine?

Fine wine is traditionally seen as inflationary-proof, attracting investors in search of hard assets in times of economic challenges, however last month saw both the Liv-ex 100 and Liv-ex 50 dip for the first time in more than two years. Is the economic outlook starting to affect fine wine?

In its August market report, the Liv-ex Fine Wine 100 – a benchmark index which tracks the price performance of the 100 most sought-after fine wines on the secondary market – dipped 0.3%, the first time it has fallen since June 2020. Until then, it had enjoyed a 24-month run of rises, rising 36.1% during that period.

The monthly report also noted a similar trend in the Liv-ex 50, which tracks Bordeaux First Growths, down 0.9% in that time with the Rhone 100 also falling 1.1% and the rest of the world 60 down 0.8%.

Despite noting that this happened amid the quieter summer months, the report warned that “the pressure of the wider global economic outlook are starting to weigh on fine wine to an extent.”

“…rising inflation and fears of recession are undoubtedly setting the scene for a testing autumn and winter period,” Liv-ex said, although it added that “firm directional shifts” were difficult to divine in the traditionally quieter summer months.

Despite this warning, however, it noted more promising signs, with Champagne and Burgundy showing no signs of falling in demand – the Champagne 50 rose 3.1%, while the Burgundy 100 also rose 1.2%, while the wider Bordeaux 500 and Italy 100 were steady at 0.1% and 0.3% respectively.

Meanwhile the Liv-ex 1000 – the broadest indices of the secondary market – rose 0.4%, taking its year to date growth to 11.6%, or 49.5% over the last five years, which Liv-ex reported noted was a marker of the “greater resilience of the secondary market when faced with external pressures”.

Furthermore, all seven indices have seen positive growth in the year-to-date, although there is no doubt that Bordeaux wines have been more subdued and losing market share, as other regions gain in importance.

Olivier Staub, chief investment officer of Cult Wine Investment told the drinks business that he wasn’t alarmed, pointing to  positive growth of the Liv-ex-1000 as a broader overview of the secondary market.

“I’m not seeing a high correlation between this [dip] and the type of interest we’re seeing,” he told db. “We are seeing a lot of people gravitating towards ‘real assets’ and wine is one of them. So, I’d say that for us the interest in wine as an asset class has never been higher.”

He pointed out a number of other factors that need to be taken in to account.

“I think this combination of factors. One was the effect that the stock market came back the last couple of weeks, we’ve seen a rally from a very bad start to the year for most stock market indices.”

The FTSE 100 saw a rise of 3.4% in July from the previous month, with the S&P 500 also rising 7.8%, although the latter is still -13.6% in the year-to-date, and down 7% on the same time last year, compared to 0.7% in the FTSE year-to-date, and a 4.8% rise over the past 12 months.

He noted that as a result, people may be tempted to refocus on traditional asset classes, having diversified their investments into hard assets like wine to protect themselves against the downward movement in more traditional asset classes.

The exchange rate was also a factor he said, as wine tends to be priced in Sterling and Euros,  it is now cheaper in US Dollars which had enjoyed a strong run in recent months reaching “the highest point in a generation”, according to the New York Times.

“I wouldn’t say [the dip] has been driven by the economic climate in general,” Staub concluded.

Matthew O’Connell, CEO of LiveTrade, Bordeaux Index’s online trading platform, told the drinks business that although the pace of increase of wine prices slowed somewhat during the second quarter of 2022, its own indices had seen the wine market up 0.8% in July and up 0.4% so far in August, with gains of over 10% this year, which he called “very strong in any context”.

“It is inevitable that a quieter summer period will see more muted activity but this shouldn’t be confused with market softness,” he added.

“We continue to see good market demand and expect healthy trading post summer.  The current dynamics of the wine market relate mainly to ultra-high net-worth spending and consumption and the positive relationship which investors perceive between inflation and wine prices; a broader recessionary environment is arguably much more of a marginal influence on the market at the ‘blue chip’ end of the spectrum.”

Two weeks ago Bordeaux Index toasted a 37%  leap in revenue in the first six months of the year, which it attributed to investors seeking refuge from soaring inflation.

“The wine market is a very positive story right now – and we expect that to continue,” he previously told db, although he noted that it was likely that the Burgundy market might see a period of consolidation.

Staub agreed. “We had 24 months of great growth and some of the regions have double digit gain on the last two years and you can’t be up every month [indefinitely],” he said. “But the trend is certainly positive.”