Fine wine looking resilient amid volatility

12th July 2016

Fine wine prices have benefited from the uncertainty created by the Brexit vote says The Wine Investment Fund.

TWIF says prices firmed significantly partly because of the defensive properties of wine as a physical asset meaning wine performs well in times of market uncertainty, and partly as a result of sterling’s weakness in the aftermath of the vote.

For the month as a whole, the main indices increased by 2.1% (Liv-ex 100) and 2.2% (Liv-ex Investables). Almost half of this increase was prior to the referendum result on 24 June, with half in the final week. Lafite was the strongest performer across a range of vintages, which has historically been the sign of a strengthening market says the fund.

Falls in sterling have been well documented. Looking at the main currencies relevant to the fine wine market, the drops on the month ranged from 7.5% against the Chinese renminbi to 15% against the Japanese yen. These movements dwarf those from volatility. From an overseas perspective, prices for wine stocks in the UK which is by far the largest source of fine wines, wherever a buyer is located are now significantly lower.

Whilst weaker sterling is a factor in fine wine’s recent resilience, its defensive qualities are fundamental. As a physical asset, fine wine tends to perform well in periods of uncertainty, acting as a store of value: gold, which has very similar characteristics, rose by 10% in the week following the referendum says TWIF. It also argues that wine is also historically much less volatile than equities, implying lower levels of market risk. Finally, it is also not linked to the prices of other assets in most circumstances: the long-run correlation between wine prices and the FTSE 100, for example, is just 0.04.

“We have not only seen price increases, but also sharp rises in volumes traded” said Andrew della Casa, founding director TWIF. He says: “This seems to be the result of both overseas buyers taking advantage of lower prices due to the weakness of sterling, and some speculative interest from those anticipating further rises in prices. Given that we’re at a very advantageous point in wine’s investment cycle, and the continued attractiveness of wine prices in currencies other than sterling, there looks to be plenty of mileage left in the current upturn for investors to benefit from by investing now.”

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