Kung Hei Fat Choy!
At last Chinese New Year (CNY) is upon us, and for investors in the fine wine market this annual festival has become something of a red letter event. Since the entry of the Chinese consumer and investor into this market place some 10 years ago, it has paid dividends to keep tabs on what they are up to. This year is, we might argue, more important than most.
Over the last four years the market, in Liv-ex 100 terms, has peaked, corrected, and consolidated. One of the reasons for the correction and consolidation has been the current Chinese administration’s unsympathetic attitude to lavish displays of wealth, and to the reward of government officials for “guanxi” received. (Other reasons, as APM clients will well appreciate, include perceptions of a slowdown in China’s economic growth, concerns over the Eurozone, and the market having overshot in the first place.)
“Guanxi” is often incorrectly interpreted in the West as simply a bribe, but it actually has much broader connotations than that. It is not over-stating it to say that “guanxi” is one of the central tenets of Chinese culture. Now is not the time to discuss this in any particular detail, but in our view it is very important to understand it, because what the current administration is doing is to address the most flagrant effects of bribery in official circles. They are NOT attempting to stamp out “guanxi”, because to try and do so would be to undermine one of the core philosophies behind thousands of years of Chinese civilisation. “Guanxi” has not gone away, nor will it. Ever.
As Chinese New Year has approached this year, we have seen a benign alteration in the complexion of the fine wine market place. The market has rallied, the ratio of bids to offers has moved back into positive territory, and interest has reverted to Bordeaux. In one of our January notes we suggested that if the market could hold at these higher levels through CNY then it would be a green shoot of some merit.
In theory, the CNY effect should have dissipated some two weeks ago, given transportation times from merchants here over to HK and China. Last week, however, not only did the market continue to firm up, but Bordeaux wines dominated trading activity, with First Growth market share particularly strong. We would argue that a recovery of Bordeaux and First Growth prices is an important precursor to an improvement in sentiment for the overall market.
We also note that Cos D’Estournel 2005 was the most traded wine on the Liv-ex exchange both by value and by volume last week. It is particularly interesting to see it top by value as its cost is only £1,395. Obviously First Growths don’t come that cheap, so Cos has to sell many more cases to top the value charts. We have been putting this wine into portfolios since the last quarter of 2014 so it is gratifying to see it up 20% in the last two months.
It is no surprise either that another 2005 should be of such interest. As we have been at pains to stress, the benefits to that vintage of the ongoing upgrades from influential critics are far from over.
So we enter the Year of the Ram with quite high expectations. Chateau Mouton Rothschild recently took advantage of this (Mouton is French for “sheep”, but the association clearly remains), by achieving double the reserve prices at the recent HK auction. Exciting times could be just around the corner, once again.