Wine investment and economic growth
Last month economic data emerged from China from an export and manufacturing perspective which seem to have allayed many fears of a significant slowdown in the Middle Kingdom. It is always unwise to read too much into a set of monthly data, but the evidence seems to be that China will engineer growth of 7%+ this year. Given that this economy is now huge having grown at double digit rates for the last 20 years, a rate of 7% is perfectly satisfactory in terms of its contribution to the global economy.
In addition, the drag which the Eurozone has applied over the last few years seems to be softening, as evidence of a pick-up closer to home comes through, so it seems reasonable to suggest that, for the moment, fears of global economic Armageddon can be laid to rest.
As is always the case, the stock markets around the world have anticipated this recovery from the parlous days of early 2009, so this bull-run is effectively into its fourth year. Whilst most sanguine commentators argue that there is more to come from this particular bull, many are suggesting that the time has come to switch out of the more economically sensitive sectors into the larger growth stocks. One reason for this is the added comfort offered by the familiar names of these big companies.
There are two interesting consequences here for the Fine Wine market. If the easy gains have been made in the earlier stages of the stock market bull phase, by definition it becomes a bit harder from here (not necessarily for the market to go up, but to pick the stocks which outperform). Additionally, the result of economic growth is an increase in disposable income.
APM Wine Investments have long questioned the simple supply/demand argument as the sole basis for making an investment in Fine Wine. Arguments suggesting a total lack of correlation between Fine Wine prices and other investment classes also don’t seem to stack up considering the hair-raising effect of the entry of Chinese investors over the last decade, and the consequences of their subsequent withdrawal.
Far more likely, it seems to us, there will be a direct correlation between price movements in the Fine Wine market, and the availability of excess disposable income. Even in the UK where there is a fantastic Capital Gains Tax break (there is usually none in Fine Wine investments because wine is a “wasting asset”), a sensible investment advisor would baulk at suggesting exposure of over 10% of a total portfolio into the Fine Wine market, simply on the basis of liquidity, availability, and the fact that it is still an unregulated environment.
It follows, therefore, that marginal wine investment volumes will result from investors having more “loose change”, as evidenced by the impact of increasing numbers of Asian millionaires having such an impact, and this will require a stable period of economic growth.
APM Wine Investments firmly believe that the consequence of a more complicated stock market picture, and a global economy having found its feet, provides the ideal backdrop for significant gains in prices of investible Fine Wines.
Philip Staveley
APM
01.10.13