Analysis: Status Of Wine Markets Halfway Through 2022

Mid-Term Status For 2022

The first half of 2022 has now passed, which is why it is appropriate to take stock. Especially at a time when the financial markets have experienced large fluctuations, and the future is therefore a little more unpredictable than usual. The S&P 500 has fallen more than 20% since the start of 2022, and we are now officially in the first bear market since 2020.

The English wine exchange Liv-ex reports the opposite, that the Fine Wine 1000 index is up by 10% year-to-date, and wine investment is in plus for the year. At RareWine Invest, we are happy that the wine investors are doing well, but at the same time we do not want to help creating a bubble. That is why we now do a status and ask the questions that should be asked.

That said, the foundations for wine investment are unchanged: long-term investment and stability.

Looking back at the wine market in 2021

2021 was an unusually good year for wine investors - in fact, it was a good year for the vast majority of almost all forms of investment. And when things are going well in the traditional markets, the wine market typically follows, which was also the case in 2021 with average wine yields of almost 20% at RareWine Invest. Add to that the fact that Champagne gave a return of almost 40%.

Now half of 2022 has passed, there is war in Ukraine, supply chains are under pressure, and inflation is towering and at a level unseen since the 1980s. There is, of course, uncertainty in the financial markets, but this has not yet had an impact on the wine market, according to the Fine Wine 1000 index, which is up 10 percent in six months.

Many players within the business therefore paint a rosy picture of the wine market. It can easily be defended, but at RareWine Invest we want to help nuance this picture.

Two of the basic premises for wine investment are stability and a long horizon, and this is of course still relevant today. So even though it has been some extraordinarily good years in the short run, we expect more normalized conditions to ensue for the rest of the year.

Expectations For 2022 - What Are Normal Conditions?

At RareWine Invest, we expect the remainder of 2022 to be a so-called non-event, where the market stabilizes. The high price increases that the world has witnessed in 2021 are not the new normal, and it is even expected that we will once again experience individual wines that from time to time fall slightly in value, given the world situation.

When the more normalized conditions occur, it will offer sensible opportunities to get close to some of the wines that many buyers have been denied the past year due to extreme demand. Normalized conditions obviously seem boring on top of record years, but the next six months may be very reminiscent of 2019, which was the sequel to the record year 2018. 2019 was kind of boring as well, but those who bought up here are among those who smile the most today.

Worst Case Scenario

Right now, the world is uncertain, and should a new financial crisis like the one in 2008 become a reality, it could of course influence the wine market. Historically, however, wine is one of the strongest assets in times of crisis. In the years after 2008, wine lost only a few percent compared to the stock market, and wine was also back at the same level after just one year.

With the current worldview in mind, it is therefore to be expected with smaller and stable increases with minimal fluctuations, which also characterize the normal. However, it would be naive to assume that wine goes completely free if a crash like with Lehmann Brothers in 2008 becomes topical.

Overview Of The Five Areas For Wine Investment

At RareWine Invest, we operate with five main areas of investment: Burgundy, Champagne, Italy, Rest of World and Bordeaux. The expected future prospects for each of these areas are unfolded below.

 

Burgundy

Stability and small price increases are expected to characterize Burgundy in the near future. This can mean that there are exciting acquisition opportunities for those who have the funds to do so. The world situation certainly means that the number of buyers for the best luck will be smaller. And that means there will be an opportunity to grab some of the most coveted wines from Burgundy.

Burgundy investors have in recent years been favored by small vintages and exceptionally high quality, which has really pushed up prices. And although Burgundy has historically always stood strong, 2021 and the beginning of 2022 have been unusually good. However, the trend remains those quantities appear smaller and smaller, while quality in the broad perspective is increasing.

 

Champagne

Champagne is often referred to as the wine's response to government bonds, but in the wake of Covid and pressured supply chains, Champagne has seen some extreme price increases. A few years ago, we at RareWine Invest published an analysis which just pointed out that champagne prices would rise, as the price of Champagne had not risen nearly as much as the price of grapes and agricultural land in Champagne.

Champagne is still one of the most sought-after categories but here we do not expect to see the big fluctuations in the near future. On the contrary, there may be good opportunities to realize some positions due to the favorable market for Champagne. And even if the crisis hits, we expect that one will appreciate being exposed to champagne. If we put on the long-term glasses, nothing has changed: We still have very high expectations for the champagne category.

 

Italy

At RareWine Invest, we have long argued that Italian wines are making strong progress in recent years - both in terms of quality and investment. In addition, we still believe that Italian wines are too cheap in terms of quality. No major price increases are expected in the near future, which is why Italian wines are the class example of a classic wine investment. Italian wines in particular have long-term potential. But still, there is a small curl to this: In 2019, when everything else stood still on the wine market, according to Liv-ex, it was the Italian sub-index, Italy 100, that performed best. A trend we also saw in our own books.

 

Rest of the World

There is not much new under the sun with the rest-of-world category, which primarily features American wines, a little Rhone, as well as Scotch and Japanese whiskey. Like Italy, the long-term potential dominates, whereas the short-term is expected to be dominated by non-events without the big fluctuations. Thus, everything is as it used to be in this category - whether we are talking whiskey or wine.

 

Bordeaux

Although Bordeaux is the category that fills the least in our recommendations, it is an area favored with amazing wines. However, the price range for wines from Bordeaux is not particularly suitable for investment. In reality, therefore, very few investment cases will be relevant in the next six months. If you already have Bordeaux in your portfolio, you can sit back. The foundations for a Bordeaux investment are unchanged - it takes time.

If you as an investor have questions about your portfolio, you are, as always, welcome to contact your portfolio manager directly.

If, on the other hand, you are not yet investing in wine and are thinking of getting started, you can contact us via the contact form below.