The past month or so have been largely volatile for the world’s equity markets to say the least. The S&P started August 1,292 and finished the month with its tail between its legs at 1,213. Although that’s only a 6.1% decrease, along that bumpy trail it dipped to 1,120, a thumping of 13% in a matter of two weeks. The first part of September has seen a continuation of the uneasiness, with the close on Tuesday at 1,162, a decrease of 10% from August 1.
This was largely caused by three factors:
- The Debt Ceiling Debate and subsequent S&P downgrade,
- Continued weak US economic data, and
- That mess of a world body known as the EU.
With all of this happening simultaneously, the market has been highly reactive, with nearly ever news story sending equities either higher or lower in 2-5% intervals. Luckily, the past few days have restored some relative optimism; however with the EU’s handling of the P.I.I.G.S’ (Portugal, Ireland, Italy, Greece, Spain) debt situation, don’t expect prolonged calm seas anytime soon.
Over the course of the past few months, I’ve been writing heavily regarding wine’s viability as an investment. It’s certainly an asset that doesn’t have the same strictures of an equity (i.e. earnings, balance sheets, restructuring, etc) and in trying times, it’s been seen to be a hedge against volatility. This past month has seen the different Liv-ex indices take a hit; however when looking at aggregate long term performance, along with YTD performance, wine is holding up and has held up quite nicely through some violently turbulent periods in the equity markets.
The first illustration below shows the Liv-ex indices through the end of August and the second illustrates the two major, broad-based US indices along with the numbers for the Hang Seng. I’ve included these as they are the indices of the markets of the two largest wine collecting nations,Chinaand theUS. Finally, I’ve been getting a lot of hits on my blog with searches surrounding “wine stocks”, so I’ve thrown in the two major players in this game, Diageo and Constellation Brands.
| Index | MOM | YTD | 1yr | 5yr |
| Liv-ex Fine Wine 50 | -4.4% | 3.6% | 20.2% | 175.6% |
| Liv-ex Fine Wine 100 | -4.0% | 2.5% | 13.5% | 109.8% |
| Liv-ex Claret Chip | -4.9% | 1.5% | 14.8% | 139.9% |
| Liv-ex Fine Wine Investables | -3.7% | 5.3% | 17.9% | 132.7% |
| Liv-ex Fine Wine 500 | -0.4% | 13.9% | 24.4% | 120.1% |
*through 8/31
| Index | MOM | YTD | 1yr | 5yr |
| S&P 500 | -1.49%* | -6.29% | 8.52% | -0.31 |
| Russell 2000 | -2.45%* | -12.56% | 8.09% | .08% |
| Hang Seng (Hong Kong) | -4.43%* | -17.89% | 11.35% | 3.21% |
| Constellation Brands (STZ) | -1.81%* | -16.41% | 8.53% | -33.36 |
| Diageo (DEO) | 0.34%* | 5.22% | 15.45% | 30.81** |
*through market close 9/12 **includes dividend reinvestment
As one can see, over the longer term, including the debacle of ’08, the different wine indices held up amazingly well. There was a recent shift and month over month the wine indices have stumbled somewhat. From everything I can tell, this is largely due to the steady decrease in performance of different vintages of Chateau Lafite-Rothschild, most notably the performance of the ’08 vintage. Why all of a sudden?
Is this the Lafite "bubble" bursting, or simply correcting?
If we look closely at the relative decline of the Hang Seng, I think we’re able to isolate the issue. Lafite benefited from a meteoric rise in price and stature, becoming the most sought after of all Bordeaux First Growths amongst the Chinese. With the Chinese government’s attempts to slow down the ferocity of growth in their economy, I feel the side effects are being felt in this “bubble” within the wine investment world. Other First Growths have lagged the dynamic growth and demand of Lafite for a couple years now; however this much needed reset seems to have finally arrived thanks to tightened liquidity in China and a recent sharp correction in the Hang Seng. If this does turn out to be a reversion then this is quite healthy and is an indicator that this may not be a bubble after all.
The overall murkiness of the global economic condition and its direct impact on wine investments will be something to pay attention to. All has not been doom and gloom, in fact I expect to see a gradual tick upward as two very strong indicators offered hope. First, Acker, Merrall & Condit recently completed a US auction in which 97% of the lost sold for a total of $3.8M. This is a very promising participation rate. Second, in China, the most expensive single lot of the year went for $539K. To me this shows that the money is still there; however its probably going to be more selective moving forward. In the end, it’s through these times that we can truly assess whether or not an asset class is truly a hedge against volatility. I still feel wine offers that hedge and over the long term, so do the numbers.
Please be sure to consult different expert guides to wine investing before taking the plunge. Below are a couple articles I’ve written that may assist in offering additional clarity as to some of the topics discussed in this article:
- Wine: Understanding and unlocking its investment potential
- Wine Company Stock vs. Investing in Wine: Understanding the differences
The mentioning of the stocks in this article by no means constitutes a recommendation to buy or sell, rather they were used for informational purposes only.
Senel Wine 