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Fine wine post ‘Brexit’: sour grapes, or a question of improving with age?

21st July 2016


If Brexit were a fine wine, it would be a dusty, sediment-laden Petrus 1965 found at the back of a Spanish farmer’s kitchen cupboard, given a good shaking and left to settle on a sunny windowsill. No-one agrees with the way it’s been handled and no-one has high hopes for its future, but we’re going to have to swallow it and smile.  

The fine wine market has also been through its share of upheaval in recent months, what with Bordeaux 2015 proving pricier than ever and the subsequent crash in Sterling that followed the UK vote to leave.

But what does the Brexit vote mean for investors, and the future of fine wine as a commodity?

 

Fine wine trade going strong

Despite the turbulence of recent months, Liv-ex indices have continued to rise. The Fine Wine 1000 closed June up 3.4%, its largest gain since May 2007, and the Fine Wine 100 rose for the seventh consecutive month for the first time since March 2011.

This is mainly due to increasing activity from Dollar and Euro buyers, including of course Asian drinkers and collectors. Beychevelle, a Bordeaux favourite in Asia, was one of June’s top performers, its 2006 vintage gaining 11.6%.

 

Wine investment: the outlook

“It is interesting,” said Alan Livsey, when asked about the impact of Brexit on UK investors in an interview for the Financial Times’ Money Show.

“The immediate effect was what happened to the pound. The UK is the Number 3 fine wine market for Bordeaux after Greater China and the US, and there is a lot of wine that is bought here in pounds, and stored here in pounds… so when the pound went down, there was an arbitrage that became available, and overseas investors immediately started calling to adjust that price.

You can see prices moved with Sterling in the week or two after the Brexit vote. So that’s been exciting for the trade, and it’s been good for the market.”

For overseas Dollar or Euro based investors then, it’s a great time to stock up and take advantage of current Sterling weakness. On the other hand, UK-based investors should hold onto their wine and wait for the storm to pass.

“If you’re looking to replace stock or even just want to buy wine, at some point we’re going to see prices going up, ” says Livsey. Rather than selling off now when prices are low, holding onto your stocks may bring better returns in the long run. Despite the hiccups caused by Brexit, the market looks set to stay on the road to recovery and has firmly withstood several financial crises in the past.

 

Investment wine: a global commodity

In the bigger picture, the UK can look forward to closer trade relationships with countries outside the EU enabling a greater influx of Australian and American fine wines and creating a truly global marketplace for a product that has historically been very Eurocentric.

With Parker relocating to California and more and more wine coming out of places like Australia and South Africa, the European wine market is in for a healthy dose of competition, which can only lead to better prices for better products.

The outlook for Bordeaux may be gloomier, with the UK accounting for 15% of all imports from the region – but Asia took in almost half of Bordeaux’s finest wines last year and that market is not going anywhere. It will simply be a case of adjusting to the times – something the Bordelais will have to work on, admittedly!

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