Fine wines are unlikely to fizz over

14th June 2011

The possession of well-stocked wine cellar (not to mention the mere presence of a room for the exclusive use of storing wine) is an almost exclusive preserve of the rich.

But as The Guardian's Fiona Walsh writes, wine has itself become an investable commodity.

Unlike some asset classes though, you need to be seriously rich to buy it.

Walsh writes that prices of fine wines have surged on the back of an explosion of interest from China and other Asian countries.

Production is limited: as she points out, there can be only one harvest a year.

So winemakers in the French region of Bordeaux are turning their attentions to quality not quantity. 

She writes: "At Château Latour in Pauillac, horses plough the vineyards just as they did in the 14th century, when vines were first grown on the estate.

"But this is a recent return to tradition at Latour, one of the five renowned "Premier Grand Crus" of Bordeaux, and it's based on sound commercial considerations rather than sentimentality.

"The reintroduction of horses at Latour 18 months ago is part of that drive for quality – they plough with more precision than tractors and do far less damage to the soil and vines, some of which are 100 years old."

Although the price of wine dippped during the credit crunch by 2010 top-end bordeaux outperformed not just equities, but gold and crude oil too.

Money Observer notes that the Liv-ex Fine Wine Investables index, which tracks the price of Bordeaux rose 20 per cent in 2010 and gained 3.1 per cent in March 2011 alone.

Since the start of 1998, the index has risen almost fourfold and has generated an annualised return of close to 7 per cent a year over the past decade.

Money Observer writer Peter Temple writes that some experts among specialist wine investors attribute this to the heavy weighting of Château Lafite in indices and others like it.

He reports that Lafite prices were driven to "exaggerated levels by Asian buyer"s last year but have since paused for breath, other wines such as Haut-Brion and Mouton Rothschild have taken up that "slack" with a 9% rise in January 2011 alone.

The world's largest wine auctioneer – Acker Merrall & Condit – has seen sales levels at its Hong Kong auctions outstrip those in New York. The strength of the renmimbi against sterling and the dollar has also played its part in underpinning prices.

The Chinese also appear to be putting their money where their palates are, notes Temple.

A 20-hectare Bordeaux property (Château de Viaud) was last year bought by Cofco, a Chinese state entity, as part of a strategy to develop a Bordeaux-branded wine specifically for the Chinese market.

So should investors look at wines as the next big commodity?

Well there are those who argue that wine investment is yet another bubble waiting to burst.

Sam Gleave of Bordeaux Index, is quoted on The Guardian as saying "There was a slight slowdown several months ago but that was what the market needed. People are drinking as much as ever and are realising that it's worth looking at second growths from the better vintages.

"As people's palates become more educated, we expect to see buyers branching out into other areas, such as burgundy and rhône."

It's also worth pointing out that only a tiny proportion of global wine production – less than 1% – is considered investment grade.

Investors considering wine for anything other than imbibing might like to take a look at this guide published on the Independent's website.

Buying the right wine is only half the story, it needs to be stored carefully too; that wine cellar doesn't look like such an extravagance after all.

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