Q1 2020: Stock-beatings And Stress Testing Of Wine As An Capital Preserving Asset

Q1 2020 In Just 11 Minutes

Get the full overview from the wine investor's perspective of how Q1 2020 performed in the video below. Here Anders Børsen, CEO of RareWine Invest, will take you through the state of the wine market and not least how the corona crisis affects the wine investor and the wine market. In addition, get the status of the quarter on RareWine Investment's four main categories: Burgundy, Champagne, Bordeaux and Rest of World that for instance embrace whisky and Italian and American wines.

Watch the video below and read more about the quarter and the future's attractive opportunities for the wine investor.

Existing wine investors can enjoy very limited losses compared to the stock investor, while both existing and new potential wine investors are now faced with favorable acquisition opportunities.

Outside Circumstances Affect Investors

The unrest in Hong Kong, the Chinese-American trade war and the US penalty duty on European wine put an end to the huge price increases we saw in 2018, and with a modest return of 2.6% in 2019, we put increased focus on wine's capital preserving properties as we late January commented on Q4 2019.

Less than three weeks later, the greatest share decline started since the financial crisis and the fastest decline in modern times.

The stock market lost 35% of its value in just 30 days, briefly sending prices back to the same level as before the financial crisis more than 12 years ago. While this has caused concern and uncertainty among investors, the wine investor has been able to sleep more calmly.

Wine Does Better In Times Of Crisis

No one knows how serious this crisis will be. Some think we're through the worst, while others think we've only seen the tip of the iceberg. Nothing is safe yet.

It is certain, however, that the major fall in stock markets, 23% in Q1 2020 alone, has sent the stock markets back to 2014 levels, and more than five years of stock returns have been lost in a very short time. During the same period, Liv-ex reports a slight decline in wine prices of just under 8%, which sets back wine prices 18 months.

Around The World Of Wine: Champagne And Tuscany Do Best

Especially Champagne and the wines from Tuscany have performed significantly better than the other regions this quarter. The prices of these wines have dropped just a few percent, and some have even risen in price. In these regions we must find this quarter's bright spots.

It is worth noting that the two areas that stood out positively in this quarter were exempted by the 25% US penalty duty imposed on most European wines. Thus, part of the fall in prices we see in the other areas is probably not solely attributable to the corona crisis. At the same time, it gives us hope that we will have a smaller price increase if the US penalty is abolished sometime in the future.

In Italy, it is the supertoscan, and once again Sassicaia, who steal the limelight while especially the secondary vintages of Dom Pérignon make a positive contribution to Champagne.

Liv-ex reports a 6.8% decline in Champagne, which we cannot recognize when reviewing our investor’s portfolios. Here we see stagnant prices and a few percent declines.

Burgundy wine prices rose 33% in 2018 but declined 2.9% in 2019. The Corona crisis also affected Burgundy prices in Q1 2020, but while Liv-ex reports a decline of 8.7%, the actual price decline is rather 5-6% among RareWine Invest’s investors. It is the wines that took the biggest leaps in 2018 that have seen the biggest losses, but despite this, these are still up by between 50 and 100%.

Prices in Bordeaux are more sensitive to economic trends than the other regions, as this category continues to constitute the vast majority of the value of the world's total investment wine. Bordeaux prices also fall 7.6% which affects most of the wines incl. the most expensive Bordeaux wines. Bordeaux remains a region where our recommendations are few and extremely well considered.

While Italian wines are the bright spot in the Rest of World index, whisky is affected the most, being a category which has historically been associated with higher returns and higher risk.

Despite dark skies in both the financial markets and the world wine markets, the basic premise of wine investment does not seem to have changed. Thus, the wine investor's expectations of solid long-term returns can still be met if the basic prerequisites for wine to become more expensive in the future continue to exist.

From Crisis Rise Attractive Buying Opportunities

If the crisis is temporary, so may the price falls be.

More wines are being traded right now at prices that are 10-15% lower than six months ago, and this allows for some of the greatest and most exclusive wines to be picked up at a discounted price. For example, a fall of 11.3% over the past five quarters means that burgundy prices are approaching an extremely interesting price level, seen from a buying perspective - and the potential has not coincided with the price. On the contrary.

Moreover, some wines in recent vintages can potentially be offered at prices which, compared to the previous vintages, will seem cheap.

Right now is a obvious time to increase investment in wine, which, in addition to being able to buy at a discount, also represents a safe haven in this and future times of crisis, which is attractive to both existing and new potential investors.