A pair of Millennials

01.11.2018  –  Fine Wine Investment  –

Last week the Liv-ex announced that the total value of bids and offers on its platform had reached an all-time high at over £50m. It is worth pausing to reflect on the implications of this. In the early years of the century volumes were in the lower single digit millions, rising dramatically from 2008 when Hong Kong removed import duty from fine wine thus releasing the shackles to allow Chinese buyers free rein.

By the June 2011 market peak the figure had risen to £20m, but Bordeaux was very much the dominant element, indeed you could argue (we do!) that the broadening of the market to include wines from Italy and the US amongst others was the very result of the correction in Bordeaux. Over the period of consolidation up to 2016 volumes held at around the £20m figure, but the complexity of the market was very much evolving.

Over the last 30 months the figure representing open interest has leapt to £50m, as Bordeaux wines came back to the party, and Burgundy prices continued to skyrocket. It should be said though that this last element would not significantly distort the numbers because whilst the value of Burgundy wines is very high, the volumes going through are still very limited.

Either way, the fine wine market as represented by the volumes going across the Liv-ex platform has expanded hugely, which can only be a good thing. This is consistent with our own anecdotal evidence from visits particularly to Asia. In many Chinese centres we now have a ready ear for the fine wine investment proposition, indeed no visit to China would now be complete without a presentation in Foshan, a suburb of Guangzhou which would have been off the map 3 or 4 years ago.

This speaks to a perfectly logical trend which we are noticing in places like India too. As developing economies expand and throw off more and more millionaires, the middle class starts to expand dramatically. Ask any travel agent and they will cite more and more visitors to the West from Asian centres, a trend under way for quite some years now, especially with respect to China.

Part of the developing market psyche involves an aspiration for Western luxury goods once you can afford them, and fine wine fits the bill not only as a luxury good but also as part of a lifestyle trend. Until very recently whenever we went to India we were told that Indian people only drank whisky and beer. Some people still believe it. Patently untrue. We at Amphora should know. Our partner in India has 65% of the domestic wine market, and has no trouble finding buyers for his wares!

In our last note we drew fine wine investors’ attention to the value resident in certain back vintages, as captured within the Bordeaux Legends sub-index, and this week we will look at two vintages which are unarguably “on”, those of 1990 and 2000. You may recall (from the last note) that by the aggregate scoring measure 1990 totalled 472 against 480 for 2000, so by that yardstick the Millennium vintage is slightly better, and we are all very familiar with its propensity to show premium prices as a mark of Millennial respect. Cue Mouton 2000!

We have seen how Leoville Las Cases 1996 looks good value against the 1986, and now staying in St Julien, indeed staying with Leoville we can see the value thrown up by the Poyferre 2000, against the 1990. Here is the chart, going as far back as data allows:

Leoville Poyferre

The 2000 came to the market at a hefty discount to the then 1990 price, to account for the additional age of the latter and because back then en primeur prices still came as something of a bargain. In St Julien the regional vintage score for 2000 was an excellent 96, if not quite the outstanding 98 that 1990 achieved, and the individual wine scores are an identical 97 (RP).

On the basis of the above any qualitative judgement would determine that the 1990 should be more expensive than the 2000, notwithstanding any premium the market might accord to the Millennium vintage, the question is to what degree? We would argue that with the market supporting prices around £3,000 for the older wine, £1,500 for the 2000 seems like a very good entry point.

This is true to a lesser degree with Cheval Blanc. Again in St Emilion 1990 was pretty special with an overall vintage score of 98. The Cheval Blanc individual wine score is 98, so it may come as no surprise to learn that a case will cost you in excess of £11,500. Actually movements in the Parker scores for 1990 make interesting reading, and serve as a reminder of how fine wines do indeed evolve as they age.

At en primeur time he scored it 92-93 rising to 95 by 1995 and 98 by 1997. On 1st January 2003 it was given the full monty of 100 points before coming back to 98 in 2009. I detail these because whilst wines are constantly being regraded, the scale of movements in the 1990 is quite wide.

After it went into bottle Robert Parker gave the 2000 a princely 100 but in 2010 scaled that back to 99, whilst still waxing lyrical about it. As such it is slightly better than the 1990, but costs “only” £7,500. The degrees of separation in the wine scores are sufficiently narrow that the only explanation for the substantial discount can be the age, and whilst the discount is less than in evidence for the Leoville Poyferre, we would be inclined towards Cheval Blanc 2000 if looking for an older high quality wine with good aging potential.