The recent instability of world economy caused by the Greek Debt is no longer a news headline. It has now been agreed by most of the economists that Euro 340 Billion credit default is only a matter of when. Hinted by the Fine Wine index (Liv-ex), the world economy seems to be on the edge of a second recession, or is it?
Liv-ex 50 has reached its year high at 28th June at 445.56 and has just breached the 400 mark today (21st Sept), with an almost 9% plunge in only three months’ time. Live-ex 100 dropped by almost 9.5% since July, and even the top scoring Bordeaux First Growths (Claret Chip Index) has decreased almost 9% in the past five months. Given the uncertainties of the world economy along with the non-progressive governments and greedy politicians, it would be difficult to convince any investors that it is a good buy-in point now.
The risk for the short term fine wine investment (between 1-3 years) is now relatively high. All major Liv-ex indices have just turned downhill from their historical highest, the Euro zone are now in the middle of their own financial crisis, USA trying to recovered their own aftermath but only by injecting themselves with endless newly printed Franklins. Given the historical data from the 2008 financial crisis, I predicted that Liv-ex still has another 20-30% down fall potentials in the year to come at latest.
It is true that Bordeaux can only produce a minute amount of Grand Crus a year and the yield for 2010 vintage has decreased by about 30%; furthermore, the older vintages will only be consumed and there would not be another year 1982. However, we have to assume that the fake replica do not existed, which we all know is impossible. The Grand Crus are now being traded like most of the commodity (e.g. gold) with transparency and market prices, where the release prices are determined by all those Chateau big shots who mostly lives in their Paris palaces.
It is also true that the demand from Chinese and the Indians is another good support for the market prices, but if anyone who can buy a case of 2010 Chateau Lafite at Euro 12,000, why would they pay Euro 14,000? The currency exchange also favors the dollar (or the non-Euro) holders. Euro/US traded at 1.36 in the middle of September this year, which dropped almost 9% from the year highest (1.494). The three short-term moving averages clustered and suggested that the future trend in the next quarter to come is downward or maintaining the level at best.
Euro zone economy is already on the edge, blurry 2012 market forecast, US dollars everywhere, dropped in Euro, plunge in short term Liv-ex indices, overly heated vintage 2010 release prices, soaring Chateau Lafite prices. I suggest that the short-term investors to lower their allocation and inventory and raise their cash level. Or perhaps look into vintage 2003 and 2005 because some of premiums are still under-valued. Of course, if one who is buying the fine wine for his or her own consumptions in the next twenty years to fifty years to come, then it is only the matter of picking what you desire, but make sure you covered the buy-in price for the next 3-5 years because it would be unpleasant to have the market turbulence ruining the pleasure of collection.
(original statistics: liv-ex.com, cnyes.com.tw - for personal use only)
(original statistics: liv-ex.com, cnyes.com.tw - for personal use only)
This analysis focuses mainly on the Bordeaux because it weights over 90% in all major Liv-ex indices. Though the super-premium Burgundy such as DRCs is also a good target for investment; however, my personal view is that their economy scale is trivial and does not really fit into a commercially investable commodity. Nevertheless, it would be even more sought after once the Chinese have realized the value of the Burgundy, but only some thousands or even just hundreds of cases are being produced each year and already in high demand by those wealthy English and Americans. It would be really hard for rookies to cut into the loop trying to get their hands on a case or two, and even if you made double or triple in return of your original purchase, the economy of scale will put you off if it is a pure investment act.
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