Higher interest rates and weak demand from China damp ‘frothy’ market.
The market for top-end Burgundies, vintage Champagnes and other fine wines has soured this year, as higher interest rates and a slowdown in the Chinese economy catch up with the once-booming asset class.
The price of Burgundy has dropped 15.7 per cent this year to the end of November, according to wine exchange Liv-ex’s Burgundy 150 index. Top-end vintage Champagne is down 17.2 per cent, while wines from France’s Rhone valley have lost 19.4 per cent in price on average, according to Liv-ex indices.
After heady gains since the start of the pandemic, the falls mark the first major downturn for the fine wine market since a three-year sell-off that began in 2011.
“I don’t believe it can be sugar-coated — it’s been a very challenging year” for the market, said Anthony Maxwell, chief commercial officer at Liv-ex.
Wine has been a standout investment in recent years, driven by pent-up demand during the coronavirus pandemic and a hunt for alternative assets as mainstream financial markets tumbled last year.
Prices surged 39 per cent from the start of 2020 to the end of last year, according to Liv-ex’s benchmark index, and even outperformed global stocks during 2021’s equities bull market.
A shortage of top vintages also triggered a rush to buy scarce wines. The 2021 harvest in Burgundy was badly hit by climate change, while a poor harvest in Champagne the same year led many houses to hold on to older bottles. That helped vintage bubbly enjoy its biggest ever annual rise in 2021, popping 41 per cent, and it made further big gains last year.
But the terroir for the market has changed dramatically in 2023, and investors in many of the previously top performing wines have now been left with a hangover.
Among Burgundies, Domaine Romanée Conti’s Richebourg Grand Cru 2017 has fallen 29 per cent this year to £33,015 for a case of 12 bottles. Domaine Georges Roumier’s Bonnes Mares Grand Cru 2014 is down 15 per cent, to £16,369 for a case of 12.
Krug 2008, a vintage left to age for more than a decade in the Champagne house’s cellars, surged nearly 60 per cent in value in the months after its release in 2021. But this year it has fallen by one quarter to £4,350 a case. Louis Roederer’s Cristal 2013 is 22 per cent lower at £2,200 a case, according to Liv-ex.
“There were certainly parts of the market that were very frothy” at the end of last year, said Tom Gearing, chief executive of investment firm Cult Wines who was previously a finalist on the UK version of The Apprentice. “Wines that have risen the most over the past three and five years have given back the most” this year.
Weighing on prices is the steep rise in global interest rates over the past two years that has hit many asset classes hard. For many investors, this means they now have the option of putting money in the bank and earning 5 per cent or more interest — not far off the 7 per cent or so return that wine has traditionally delivered on average over the longer term.
“Interest rates are making people think twice,” said Matthew O’Connell, head of investment at wine merchant Bordeaux Index. “It’s the quietest market I’ve seen. Prices have drifted.”
Chinese and other Asian buyers who have driven demand for Burgundy in recent years have also retreated as China’s economy has failed to rebound strongly after strict coronavirus lockdowns were lifted.
“People were hoping that . . . China’s unlocking would see that area [of demand] come back, but it’s not materialised,” said Liv-ex’s Maxwell.
There have still been occasional opportunities to make money, however, for instance in some Italian wines, which did not enjoy the same surge in prices as Champagne and Burgundy in recent years and have fared better this year.
Gregory Swartberg, chief executive of London-based wine investment company Cru Wine, bought Roagna, Barolo, Pira Vecchie Viti 2016 for his clients in June, and profited as it surged in price, helped by very low levels of production and high scores from critics.
He has recently been buying for clients Mouton Rothschild 2019, whose label was designed by Danish-Icelandic artist Olafur Eliasson and shows the path of the sun in relation to the winery over the course of a year.
Swartberg sees value in the 2019 because it has fallen from its all-time highs and is favourably priced compared with other Mouton vintages.
Expectations have been growing that global central banks will slash interest rates next year, which should help the wine market, and many in the industry, such as Bordeaux Index’s O’Connell, believe prices are close to steadying. However, some think it could take time for buyers to return after this year’s painful price falls.
“We don’t believe prices have quite reached the bottom yet,” said Liv-ex’s Maxwell. “Definitely into next year price pressure will remain. I’m not sure buyers are feeling confident enough to enter back into the market.”
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