Asian HNW individuals have been among the reasons why fine wine prices have been so strong in recent years. Prices retreated in 2012, but now is a good time to re-enter the market, investor professionals say.

Editor's note: Asian buyers have been among the main reasons for the rapid price gains by fine wines in recent years, driving interest in investment in this niche asset class, although the past 12 months have seen prices retreat somewhat. While global in significance, the latest developments highlight the importance of Asia to this market. 

The fine wine market is said to be bouncing back, despite recent price declines fetched at sales, and Asia continues to be a key source of growing demand, investment practitioners say.

The Liv-ex Fine Wine 100 index, the industry’s leading benchmark of prices fetched by merchants, fell by 10 per cent from the summer of 2011 to July 2012 as a result of the eurozone crisis and sluggish Asian demand, said Liv-ex in a statement recently. However, The Wine Investment Fund, a portfolio of fine wine investments, recently said that now may prove to be as good a time to enter the market as it has seen since early 2009. It forecasts a 14 per cent rise in prices this year.

TWIF forecasts much brighter conditions for the market. Firstly, it argues that the price falls in 2012 all took place in the first half of that year; the second six months of 2012 saw a return to stability and, towards the end of the year, there were signs of a recovery. Secondly, the weak market has seen prices drop to levels well below trend, potentially allowing for a sharp recovery.  Thirdly, institutional sales which affected the market throughout the whole of 2012 have begun to fall away, said the firm.

Asia remains the key source of growing demand for fine wines, said Rickesh Kishnani, managing director of Platinum Wines, a Hong-Kong based fine wine merchant: “The wine investment market has an ever-growing client base that originated in Europe, but is increasingly fuelled by China, with India and other emerging markets on the horizon. In the first six months of 2012, 200 million litres of wine were imported to China with a total value of $1.79 billion - an increase of 24 per cent over the same period in 2011.”

Liv-ex director James Miles supports a similarly positive outlook, without disregarding the difficult past year for the fine wine market. “Since the lows of July, the value of bids on the exchange has increased threefold, suggesting a return of confidence” he said.

Attractive

Not for a long time has wine looked as attractive from both short term and longer term perspectives, said TWIF. In the short term the current lower valuations are appealing; providing the potential for an immediate and potentially sustained uplift.

“In the longer term many investors are becoming nervous about the inflationary effects of the very loose monetary policies being pursued around the world. Like gold, wine is a physical asset which is immune to inflation and its value cannot be eroded by the actions of governments.  It is therefore likely to attract attention when inflation fears rise,” said Andrew della Casa, director, The Wine Investment Fund.

Over the last five years, the Liv-ex 100 fine wine index has risen by 8 per cent. The FTSE 100 index of blue-chip UK stocks, in contrast, fell by 9 per cent. Using the longest available time series, the Liv-ex Investables index, fine wine prices have risen by 12 per cent per annum since 1988; the equivalent figure for the FTSE 100 is 4.9 per cent.

Specifically, Liv-ex posted strong recent performance for Pavie and Angelus, two St Emilion Premier Grand Cru Classe A vintages. Additionally it named Taittinger, Dom Perignon and Cristal as top champagne brands that accomplished high trade results for their newly released vintages.