Wine Vs Everything Else
The past year may not have felt particularly comfortable, but most pension funds, unarguably the vital ingredient of most people’s overall investment plan, will have had a pretty decent year.
Especially if they had much exposure to the US equity market which, rising 30%, enjoyed its best year since 1997. (Remember those pictures of Prince Charles leaving Victoria Harbour in Hong Kong aboard the Royal Yacht Britannia?) Now it is not entirely beyond the realms of possibility that the S&P might follow up with another good year, in fact notwithstanding QE tapering many commentators see 2014 set reasonably fair, but it is as well to recognise that Developed World equity markets are about to enter the 5th year of the current bull market. This phase has seen a 100% rise in the S&P and 50% in the FTSE100. The Nikkei rose 50% in 2013 alone.
Most markets are cyclical. Sure, structural shifts occur from time to time in specific sectors, but after the rebase caused by any structural shift, the cyclical nature returns, albeit at that rebased level. The reason for this is that the investment environment changes to adapt to differing sets of circumstances. For example, in a typical equity market cycle, a bull run will emerge from a parlous set of economic conditions. This economic downturn is addressed by Central Banks by a lowering of interest rates, which creates the liquidity which is the primary stimulus for the bull run.
As the economy recovers, rates rise to offset the threat of inflation, thereby choking off some of the excess liquidity. The bull tires, and the combination of ready profits and a reduction in liquidity causes the market to peak, and then fall. This happens every time. What makes it a bit more complicated is that “history doesn’t repeat itself, but it does rhyme”. It is never “different this time”, yet it is always different this time. In other words, the same things always happen, but in a slightly different way.
Over the last week stock markets around the world have wobbled as a result of concerns about developing nations’ currencies, and, yet again, the combination of Chinese economic growth and QE tapering in the US. Investments regrettably aren’t a one way bet. This is why diversification is so helpful from a risk perspective.
So what has all this got to do with the Fine Wine market? Two things, at least. Firstly, Global economies are in a much healthier state than for some time, notwithstanding this recent shiver. Many of the problems associated with the disasters of 2008/9 have been tackled. Ireland, Portugal and Spain are able to borrow again.
Greece is even talking about raising a few bob. This means that there is more disposable income available for investors to play with. Under these circumstances, some can be expected to look for a return in the Fine Wine market.
Secondly, it might be argued that the easy money has been made in the equity markets. Anyone who thinks this way could easily be excused for casting around for the next big thing. And if he or she has been reading the banner headlines about the Liv-ex indices, it is perfectly possible that Fine Wines might be a beneficiary.
Regular readers will be familiar with the chart below.
To reiterate: Gold has come off as threats of global economic Armageddon recede.
Oil has gone up and held up to reflect additional demand resulting from renewed economic growth.The S&P is about to enter the fifth year of its bull run.
Fine wine at the Left Bank end has spent two and a half years correcting its excesses from its own bull run.
If all of the above are correct, the opportunity right now is in the Fine Wine market.
Phil Staveley
31.01.14
APM