The Wall Street Journal posted this article today:(quote)
There isn’t much that’s finer than wine these days, especially as an investment.
The Liv-Ex Fine Wine 50 index, which tracks the 10 most recent vintages of top Bordeaux first-growth wine producers, rose 57% in 2010. That’s better than the 13% climb in the S&P 500 index and it outdoes the 31% jump in the price of gold over the same period.
The story behind the rise — as it often is with fine art and luxury goods — is China. The country’s newly minted wealthy class bought vast quantities of top-end wine from Bordeaux, pushing prices to new highs. “These are people who haven’t had wine before and they’re now coming into the market, buying the top end and drinking them and wanting to learn more about them,” said Nick Pegna, director of sales at Berry Bros. & Co. in Hong Kong. Consider this: When the 2008 vintage of Château Lafite Rothschild was first available on the en primeur market in May 2009 — also called wine futures because people buy the wine almost two years before they receive delivery of the bottles — a case of the wine cost about $3,399, according to Mr. Pegna. On Friday, he said the company sold three cases of the same wine to a Hong Kong collector for $24,395, a 618% increase in only 20 months. A quick look at the online aggregator wine-searcher.com showed comparable prices by other merchants around the world.
The boost in prices is due partly to the special bottle that Château Lafite Rothschild designed for its 2008 vintage, which features an embossed Chinese character for the number eight. Once news of the bottle design was released, Chinese buyers pushed the already lofty prices up further.
So will prices for Bordeaux head even higher in 2011? Again, all eyes are on Asia. Expectations are high for the Jan. 22 sale of Andrew Lloyd Webber’s personal collection at Sotheby’s in Hong Kong. The composer’s collection includes 747 lots of Bordeaux and Burgundy. And his decision to sell in Hong Kong reaffirms the city’s newfound status as a fine-wine capital of the world: Last year, the city sold more fine wine at top auction houses than those in New York and London combined. More important, wine experts say that the en primeur sale of the 2010 crop of Bordeaux will be crucial to assessing the state of the market. Already, the buzz is that the 2010 wines will be superb — the Bordeaux region enjoyed a summer of perfect wine-growing weather last year. But the initial reviews won’t be in for another three months.
And here’s the caveat: Those who specialize in wine investing would warn investors not to put too much weight on past performance. And as with equities, no money is made until you sell the wine. “We’ve seen a steady price increase throughout the year, but until people cash in and take a profit, it’s not a return,” said Edward Wright, vice president at Premium Liquid Assets in Hong Kong, a firm that owns more than $39 million of fine wine for investors. For those interested in getting in the market, Mr. Wright advises taking a long view. “You shouldn’t look at wine investment as a way to make a quick buck,” he said. “If you have a three- to five-year window, the market fundamentals are very strong,” he said, adding the top producers aren’t increasing production, yet demand from China keeps growing.
Of course, instead of growth, you could look for value. Mr. Pegna, the Berry Bros. sales director whose company last year sold more than $155 million of en primeur wine, said there’s value to be found in the market beyond the handful of châteaux — such as Lafite, Mouton Rothschild and Margaux — that receive the bulk of buyer attention. Wines from the late 1980s and early 1990s, for instance, are primed to rise in value because they’re ready to drink now.
“They’re great drinks right now and there aren’t many around because wine lovers are drinking them,” he said.
Gary Boom, managing director of Bordeaux Index in London, a fine-wine merchant, recommends focusing on the bad years of top labels, or on the top vintages of the second-tier wines. The reasons: The top vintages of second-tier wines are where many wine lovers will go to satisfy their thirst for high-end wine without having to pay Lafite prices, he says. And people who want to show off their riches by quaffing Lafite will likely go for the least expensive one, he argues, which means there will be demand for the lesser vintages. “I call it the Cristal effect,” he said, referring to the expensive champagne (roughly $250 to $300 a bottle) by Louis Roederer that was popular with hip-hop artists in the last decade. “If anybody’s buying to drink, they’ll choose the cheapest one.”
Unquote. For the original article, please see here.