The last
ten years in the market for top Bordeaux wines have been fascinating. A boom, a bust, a bigger boom (perhaps even a
bubble) and another bust have kept market participants on their toes or in some
cases brought them to their knees. The
last three years have seen one of the most prolonged slumps in the prices of classified
growth – and particularly first growth – Bordeaux ever seen. But these are the most famous wines in the
world which fully deserve, perhaps more now than ever before, their
reputation as some of the finest wines produced anywhere. So if the world fell out of love with
Bordeaux for a while, it would be foolish to believe that this could be
permanent. We look at what caused the
slump, why we believe it is over and why we see many trading opportunities in
the current market.
Following the sharp drop in prices which was triggered by
the collapse of Lehman Brothers in September 2008 the market recovered quite
rapidly and by early 2010 was back at the pre-crisis levels. The rally was driven by a surge of demand
from Asia and in particular mainland China and was the result of an exponential
growth in wealth amongst the middle and upper classes. First growths – and
in particular Chateau Lafite – had become a status symbol and the preferred
choice for corporate gifts and old fashioned bribery. Hundreds of new wine shops were established
and many stocked up heavily to get ahead of ever rising prices. European wholesalers and speculators also
built up large inventories.
Against this euphoric background, Bordeaux was able to
get away with eye-wateringly high en primeur release prices for the excellent 2009
and 2010 vintages, pitching them much higher than older and rarer wines. But no sooner than the 2010 campaign was over,
buyers were realizing that the pricing was illogical and regretting their
naiveté while feeling a little duped by all the hype. Also:
·
HK auctions were being swamped with consignments
including several directly from Bordeaux chateaux themselves
·
Certain marketing ploys such as Chateau Lafite’s
decision to add a Chinese symbol to their 2008 bottling, were seen as cynical
and backfired
·
The top tiers of the Chinese establishment were increasingly
critical of displays of excess and expressed a determination to stamp out
corruption
·
Counterfeit bottles were cropping up with
increasing frequency undermining confidence
As
sentiment soured, official government anti-corruption measures in China started
to bite and the bull turned with a vengeance.
Prices of all vintages, young and old, plummeted causing many of the nascent
Hong Kong businesses to fold and stocks were dumped. Other large stockholders around the world
also became forced sellers and the rot truly set in.
If
Bordeaux had a chance to turn things around quickly, it blew it. Having made a fortune on 2009 and 2010
(witness the plethora of ambitious building projects at every top chateau) they
could afford to make a magnanimous gesture when pricing the 2011s but did not.
Their protestations that prices were at least much lower than the previous year
were met with contempt. The market took
another dive and Bordeaux was losing friends rapidly.
Even that was not the end of it. In 2013, another hopeful rally was brought to
an end as modest reductions in release prices for the 2012 vintage were again
seen as far too little too late. In 2014
the market did not even bother putting in an early year rally. The en primeur campaign was another flop but comments
afterwards did suggest that perhaps Bordeaux was finally getting the message.
The Outlook
The
causes for the slump of the last three years have run their course:
·
The
frenzied buying in Asia has been replaced by a consumption-based demand which
is more informed, considered and permanent
· The
distressed disposals have been completed and the stocks dispersed
· Prices
have fallen to a level which is proving irresistible to traditional western buyers
particularly in the US where collectors are enthusiastically turning back to
Bordeaux
· The chateaux are implementing global marketing
efforts to reinvigorate their brand
· The
counterfeiters are being locked up and measures to combat fraud are being
introduced to the bottling process
· The
next en primeur release should, finally, be attractively priced and a
successful campaign will do wonders for sentiment
It
is therefore our view that the short to medium term outlook is one of
increasing volumes accompanied by a steady recovery in prices. Indeed wine
indices look to be turning a corner and other measures such as bid volumes and
the ratio of bids to offers on online exchanges are sending bullish
signals. Our predicted scenario will
provide many opportunities to capture trading profits while also enjoying an
appreciation in capital values.
