Wine still a good investment in hard times, say experts (News Feature)

By Hazel Parry Dec 30, 2008, 5:52 GMT

Hong Kong - When James Christie held his first auction in 1776, bottles of wine were among the lots to go under the hammer. Even then, wine was more than just an accompaniment to fine food - it was a liquid asset.

More than 200 years later, it's a view shared by many Asian investors, particularly in Hong Kong where collectors are believed to own around 1 million cases of rare or fine wines, or as much as 15-20 per cent of the world's total.

In May 2008, an auction by US company Acker Merrall & Condit fetched 8.25 million US dollars, at the time the highest total for any wine auction ever held in Asia.

Interest boomed and it seemed everybody was talking about wine as the safe haven for savings as the world headed for recession. It was hailed as a liquid asset in all senses of the word and one with the advantage of historically being weakly correlated to other markets such as stock, shares and property.

But the past few months have shown that even wine is not quite as immune to economic forces as those selling would have us believe. In October 2008, the market finally succumbed to the pressure with the Liv-ex, the leading fine wine exchange, recording its largest monthly fall since the index was first calculated in 2001, dropping by 12.4 per cent. Sales were also down.

Even Bordeaux, the wine considered to be the safest and most stable in price, took a tumble to drop 25 per cent from a peak in August. In November 2008, the Liv-ex fell again by 5.5 per cent, making it 11.9 per cent down since November 2007.

Analysts blamed the declines on city investors seeking to cash in on profits accumulated over the last year to compensate for heavy losses on the stock market. As one pointed out: 'If you're a financial high-flier with huge financial commitments and you've just lost your job, what are you going to sell, your house? Or your wine?'

In the same month, Acker Merrall & Condit's second Hong Kong sale realised 52 million Hong Kong dollars - an 18 per cent fall on its first Hong Kong auction in May.

Those involved in the sales are more optimistic and point to the fact in the long-term wine has always proved its worth gaining on average 12 per annum in value and that it has bounced back after similar falls in past recessions, including the Asian financial crisis of 1997.

They point to the Liv-ex statistics for November showing the index to be 12.6 per cent down year to date - but much less that the year-on-year fall of 33 per cent for the FTSE 100, 43 per cent drop for the Nikkei 225, and as much as 60 per cent for Hong Kong's benchmark index the Hang Seng from its peak in October 2007.

Acker, Merall & Condit's auction director John Kapon said: 'The world has proven historically that things go down a little bit but they always come back higher than ever before and I think the smart buyers know that.

'Wine has always held its value. In my ten years of business it has only gone one way and that is up. Given that fact, I think it is always going to hold its own and it's just a question of buying from the right producers and the right vintages.'

By 'the right producers' Kapon is referring to well established producers - the favourite being French Bordeaux and names like Château Mouton Rothschild, Château Lafite Rothschild, Chateau Latour and Château Margaux.

The reason why Bordeaux is such a good investment is all down to the simple economics of supply and demand, says Angelina Teh-Leong, Hong Kong-based senior portfolio manager of Singaporean wine brokerage company Premium Liquid Assets.

'The supply of these wines is finite and strictly controlled by the EU and the French government, these châteaux which we call 1st Growth Châteaux are not allowed to produce even one additional bottle from the quota they are given,' she said.

'On the other hand demand has grown exponentially,' says Teh. 'The market has boomed in Asia. Demand has grown to be worldwide but the supply can't be increased, so that is why you see exponential increase in appreciation.'

As the years go by that supply decreases - a bad harvest produces a low quota, wine gets drunk or damaged - but demand remains stable and even grows, pushing up prices by around 12 per cent per annum, at conservative estimate, says Teh.

A report in the Financial Times Wine Investment Supplement in May this year claimed there had not been a five-year period during the past 20 years where fine wine would have yielded a negative return.

The optimism is shared by Anthony Hanson, senior consultant with Christie's wine department, who believes, despite risks, fine wine remains a good investment option with the recent depreciation making it a buyers' market.

'The market has softened but there is still strong demand for these top bottles. The best wines are selling still selling really well.'