The fine wine market remained stable in May, with reasonable volumes on both sides of the market leading to virtually unchanged prices. The Liv-ex Investables was exactly flat (0.0%) while the Liv-ex 100 fell by just 0.3%.
The en primeur season continued to act as a drag on prices. With all remaining châteaux declaring their prices in May the pattern remained as before: a few releases worked and sold well, but the vast majority were too expensive. This is effectively a repeat of what happened last year. However, while in 2012 the negative effects via loss of confidence and cashflow benefits led to quite sharp drops in prices (-9% over the two main months of releases), the same has not occurred this year. Why might this be?
There are probably two main reasons. First, the ‘campaign’ was shorter and more decisive this year. It lasted just 5 weeks between 15 April and 24 May, compared to more than two months in 2012. Furthermore last year saw an extended game of cat and mouse, with each châteaux vying to be amongst the later releases – traditionally a sign of superiority in the Bordeaux hierarchy, but in reality leading to disillusionment and annoyance amongst potential customers. Recognising the folly of this at least, 2013 saw a relatively even spread of releases, with Mouton and Lafite amongst the first to declare. This, along with the more rapid pace, meant that interest (even if not always sales) was generated continuously. So while the market may not have benefitted from the cashflow benefits of en primeur, it at least did not suffer the same degree of Bordeaux disillusionment as last year.
Second, following the disappointment of last year most merchants anticipated the possibility of another damp squib this time around, and have been diversifying their business models to be less dependent on the Bordeaux en primeurs. Whereas previously many of the major merchants would have seen 15-30% (depending on the pricing of the vintage) of their annual turnover accounted for by en primeur, today it is more like 5-10%. The increasing interest in Burgundy will have helped in this diversification process.
Overall then the picture is of a market less dependent on the whims of the Bordeaux châteaux, and better prepared for adverse developments from that quarter. This should reduce downside risk from future en primeur campaigns – while leaving open the possibility of a significant boost if there is a strong campaign with good wines and realistic pricing.
Within the market, May saw a continuation of the broad trends seen earlier in 2013. Château Mouton Rothschild has been much the strongest of the first growths and continued its climb last month, gaining around 2% on average across a basket of vintages. Since the end of 2012 Mouton has risen at approximately double the pace of the other firsts (9-10% on average, compared with 4-5%). Margaux was the only other first growth in positive territory in May. Lafite was broadly flat, while Latour and Haut Brion both lost ground (each around -1%).
Outside the firsts Cheval Blanc performed comparatively well again, with an average increase of +1% on the month. Pétrus was approximately flat overall, but showed a sharp difference between more and less mature vintages. Years 2000 and younger were strong, with only the 2003 and 2004 showing very slight falls, while everything in the 1990-1999 range dropped. This is an interesting pattern because both ranges include great and weaker vintages, so there is not an obvious explanation. However it possibly suggests institutional buying, as many such investors prefer the higher liquidity in younger wines.
Apart from Pétrus the best performing vintages tended to be the highest in quality (e.g. 1996, 2000 and 2005).
In the auction market, results at one large Christie’s Hong Kong auction were reminiscent of the heady days of 2009/10. Many lots exceeded both their pre-sale estimates and the prices at which the same wines available in the UK market. Perhaps most successful was Pichon Lalande, where the 1996 fetched £3,100 (double its UK price of £1530) and various other vintages exceeded their market value by 30-40%. We highlighted Pichon Lalande as an outperformer last month, and we suggest a continued close eye on this château. Encouragingly, Lafite also fared well at this sale: the 1996, 2003, 2004, 2005 and 2006 all comfortably exceeded the prices at which they are available elsewhere.
Aside from this one sale (and outside Hong Kong), auction results were generally as expected.
Looking at exchange rates, the Chinese renminbi rose by 3% against sterling, which according to conventional wisdom should provide a boost to UK prices, while two of the other significant currencies (US dollar and South Korean won) also rose by 2-3%. However the Wine Adviser has often expressed the view that developments in Japan may be just as important as in China, and perhaps significantly the yen fell by 1% in May. It is possible that the renminbi rise counteracted a fall in underlying prices to leave the index stable, but perhaps more likely is that overall exchange effects were approximately neutral.
Other economic news was mixed. The major positive was a sharp increase in growth in the key fine-wine consuming economy of Japan. Annualised growth was 4.1% in Q1 (higher even than the initial estimate of 3.5%) as the country responded to the major fiscal and monetary stimulus over the last six months. Meanwhile in India – not yet a major fine wine consumer, but with the potential to become one – growth slowed, but remained at 4.8%, a very healthy figure by western standards. However eurozone figures were predictably weak, with France returning to recession, Italy experiencing its 7th consecutive quarter of negative growth, and Germany showing only a minimum positive return. South Korea became the latest country to cut interest rates to stimulate its economy with a 0.25% reduction to 2.5% as it struggled to cope with the competition generated by a weaker yen.