Q2 2020: Prices Rebound, And Wine Pass Another Serious Stress Test

Increasing Wine Prices Despite Corona Crisis

Let us make it clear from the beginning, Q2 2020 has been a positive quarter for wine investors, and the foreseeable future looks bright as well.

Noticeably, the first quarter of 2020 offered the largest stock decline since the financial crisis and a stagnant wine market. Although the decrease in price was significantly lighter than in the stock market, the liquidity in the market disappeared due to the Corona-virus outbreak.

The quarterly report for the second quarter of 2020 has been awaited with excitement on top of a turbulent start to the year. Fortunately, the excitement has been replaced by joy on top of a predominantly positive quarter - not least post-Corona taken into account. Based on RareWine's own trading data and valuation prices, we can report rising prices in the second quarter. The price level is thus very close to the level we saw at the turn of the year.

Not only are prices starting to look normal on top of the Corona-crisis, but perhaps most importantly, trading activity in June also appears to have returned to near-normal levels. It gives hope and belief that after a summer period with traditionally low trading activity, we will see a normalized wine market in September.

Overall, at RareWine Invest, investors' reported returns in Q2 at 2.0% and with a wine market expected to normalize during Q3, we can hopefully soon look back on another successful stress test of the market, which shows how wine can once again serve as a safe haven in times of crisis, while in the long run, it delivers returns that thump the stock market.

7 Out Of 8 Investors Get A Positive Return In Q2

RareWine Invest's assessment prices are forward-looking contrary to Liv-ex data and the RWI-Index. Assessment prices are a representation of what the wine could presumably be traded for. An index based on RareWine Invest's quarterly estimates of market prices would be more current and forward-looking and thus more accurate and will be introduced when the amount of data is sufficient. Until then, the RWI-Index is still appropriate.

The advantage of the RWI-Index, which is based on data from Liv-ex, which is an external third party, is that it is based on a large number of historical trading prices collected over the past 15 years. The downside, on the other hand, is that the index is backward-looking and that it may take several quarters before changes in wine prices and exchange rates are reflected in Liv-ex data.

Thus, only a small part of the normalization that we observed in June is priced into Liv-ex data. A fall in the British pound of 6.7% in the first half of 2020 also has a negative effect on Liv-ex's data.

This is in sharp contrast to the price development that we at RareWine Invest have observed. Here, 7 out of 8 investors thus received a positive return in the second quarter of 2020.

The best outcomes can be found in the two investment areas that are not affected by the US punitive tariffs, namely Champagne and Italian wine, which have delivered positive returns in 2020.

More importantly, the curve is broken and both prices and marketability are rising, and a normalization of the market seems within reach - not least in light of an encouraging second quarter with a total return of 2%.

COVID-19 Has Provided New Opportunities For Investment In Bordeaux

For the past 10 years, Bordeaux has been the subject of price increases, declining sales, and the internal accumulation of millions of bottles of wine. An inconvenient paradox for both Chateauxs and Négociants for whom the solution has been difficult to find without losing their self-respect. However, the Corona crisis provided a lifeline for the Chateauxs, and was a long-awaited opening to lower prices without loss of dignity.

The uncertainty in the market offered attractive opportunities for investors during the 2019 En Primeur. Similar opportunities have not been found in Bordeaux for more than 10 years and En Primeur was to some extent back as in the good old days with prices increasing on a daily basis.

Only time can tell whether Bordeaux is really back in terms of investment. If the new lower prices are an expression of a "new normal", there will possibly soon be a long-term potential in the secondary Bordeaux wines.

Read our assessment of 2019 En Primeur and learn more about why many investors were once again ready for an attractive Bordeaux potential: Bordeaux is back - Strong short-term potential in 2019 En Primeur.

Burgundy: The Giants Are Back On Track And The Secondary Wines Show Great Potential

With small productions, high quality and correspondingly high prices, Burgundy has long been a favorite investment topic. Record returns in Burgundy in 2017 and 2018 were replaced in 2019 by a marginal price drop while the rest of the wine market also stagnated, but still ended in a positive.

The assets in Burgundy lead to a higher price sensitivity, which allows for both extraordinary returns in good times, but also the risk of greater price falls in times of crises. Therefore, the price of some of the most famous burgundy wines also fell by around 10% in the first quarter of 2020, which is a lot in terms of wine. On the other hand, many of these have come back strongly in the second quarter.

As in the first quarter, this Q2 has offered large fluctuations in Burgundy, but this time in a predominantly positive direction, and only a few wines have fallen further.

La Grande Rue from Lamarche and the younger vintages of Rousseau's top wines are among the exceptions that, after falling prices in the first quarter, fell further in the second quarter. The decreasing prices for these top wines look more and more like an opportunity to pick them up cheaply in the market.

The top wines from DRC, Liger Belair, Rouget, Ponsot, Grivot and Coche Dury and others, have risen in price in the second quarter, and have thus recovered some of the loss from the first quarter, but are still negative for the year.

The wines from Domaine Leroy were only slightly affected in the first quarter and with stable price increases in the second quarter, most of the wines from Domaine Leroy are at zero for 2020.

Top producer Roumier as well as a number of secondary producers, including Dujac, Bonneau du Martray and Clos Lambrays, are even in plus for 2020, and pulling Burgundy in the right direction.

Burgundy Liv-ex data, shows -1.4% in 2020, while the reality is that burgundy wines have risen a few percent in the second quarter according to figures from RareWine Invest.

Read one of the quarter's best-selling Burgundy cases here: World-class White Wine: The Count of Lafon Challenge Romanée-Conti

Champagne: The Everlasting Bright Spot

Champagne continues as the bright spot in this time of crisis. The majority of champagnes have either stagnated or risen in price by 2020 and only a few have fallen in price.

The price drops are largely limited to Cristal and Bollinger RD on magnum, which is now traded almost without premium fee compared to ordinary 75cl bottles, which is highly unusual. The very special and extremely rare 2008 Oenoteque box from Salon, which among other things contains a magnum bottle from the year 2008, has fallen more than 10% since its release, even though the other champagnes from Salon have done quite well.

Among the largest, including Dom Pérignon, Cristal and Krug, we have seen stable prices, while, as in Burgundy, the large price increases have been seen concentrating on the second-best wines. Thus, the 2008 vintage from both Moët and Veuve Clicquot as well as the top champagnes from Billecart Salmon, Bollinger, and Pommery delivered good returns so far in 2020 - despite the Corona crisis.

According to Liv-ex, champagne prices are rising in the second quarter and also the least affected in 2020, while the reported data from RareWine Invest even point in the direction of an increase of 2.6% in the second quarter of 2020.

Read more about one of the quarter's great champagne opportunities here: Champagne, The Wine World’s Bond: Invest In 2012 Cristal At Bargain Price

Bordeaux - Is The Cult Region Back?

The Bordeaux wines are to a large extent subject to speculation and are thus affected by times of crisis such as these. The price declines from the first quarter seem to have been replaced by minor corrections in a positive direction, although Bordeaux is still affected by price declines in 2020.

The bright spot in Bordeaux has been the 2019 En Primeur campaign, which has offered great discounts and thus the opportunity to make money on Bordeaux En Primeur, but conceivably only for a while?

Liv-ex reports a marginal increase in Bordeaux prices in the second quarter of 0.7%, while we at RareWine Invest register an increase of 1.6% in Bordeaux prices in the second quarter.

The best Bordeaux news of the quarter: Bordeaux Is Back - Strong Short-term Potential In 2019 En Primeur

Rest-Of-World: Yet Again Italian Wine Shows Potential

Rest-of-World consists of a number of wines, which in terms of investment differ a lot. Therefore we find both bright spots and disappointments in the Rest-of-World category.

The Rieslings from the German cult producer Keller were the hottest you could get just 12 months ago, and the prices of these more than tripled in the period 2016-2019. Since the second half of 2019, however, it has gone the other way, and these wines seem to have been particularly hard hit during the Corona crisis, with relatively large price falls as a result.

The American wines point a bit in both directions with reasonable price increases on the wines from, for example, the cult producer Hundred Acre, while other producers such as Sine qua Non and Joseph Phelps (Insignia) fall in price, which makes it difficult to say anything general about the American market.

The Italians, who, like the champagnes, are not subject to US tariffs of 25%, are also doing well through the crisis. Some of these have stagnated in price while the super Tuscan Sassicaia for the second quarter in a row is rising in price.

The market for whiskey did not fall in the second quarter but is still affected by marketability, which is why it is too early to say how the prices here really are. However, the whiskey market has traditionally been the subject of some speculation and should, therefore, be more affected by a crisis than the wine market. Seen in that perspective, stable prices during a time of crisis will be a very positive outcome.

While Liv-ex reports further price declines in this category in Q2, the reality is that prices are stable in a quarter with increasing marketability. At RareWine Invest, we even register a small increase of 0.5% in the second quarter.

In addition, you can still invest in attractive 2018 Sassicaia that can come with a particularly attractive upside. We recently opened for pre-sale: The Pre-sale Has Started: Sassicaia 2018 - The Super Tuscan In An Anniversary Vintage

The Future For Wine Investment

One can safely say that the wine investor, like all other investors, has had a year with excitement beyond the usual. If you are one of those who enjoy a safe night's sleep, it once again seems that wine provides security, and in broad terms has shown good capital-preserving properties, and we have also seen price increases. In the long run, all the basic fundamentals for wine investment are intact, and investors can expect the usual returns.

Here and now, wine has once again passed a tough stress test and we are now in a situation where the activity is increasing considerably in the market and to some extent is back to normal. The black clouds, primarily caused by Covid-19, seem to be dispelling and the outlook is once again positive.

Summer is just around the corner, which is historically a quiet period in the world's wine markets, but if we disregard this, the wine investor looks to a future with exciting perspectives and there is every good reason to rejoice in the positive pace in this year's second quarter.