China's demand for fine wine is driving up prices around the world. Their thirst for good wine is bringing them back full circle.
If you had invested $1,000 in the Liv-ex 100 Fine Wines Investables index in 2006, it would have returned more than 250 percent. If you invested in global equities (MSCI World) however, your money would only have doubled, according to a wealth report by Julius Baer.
Uncertain supply and demand, low liquidity and high dealing costs are some of the risks associated with wine investments. Despite these risks, the fine wine index – which tracks a basket of top fine wines – was actually less volatile as compared to stocks and commodities.
Acquiring a Taste for Made-In-China Wines
The well-to-do in mainland China have traditionally valued wines from abroad. However, recent surveys show that affluent millennials are open-minded and can equate «premium» with certain locally produced goods.
One particular wine, Ao Yun, is a Cabernet Sauvignon produced in Yunan (China) that fetches more than $300. Ao Yun, which means flying above the clouds, points to the Himalayan foothills where the grapes are grown.
Thirst Looks Set to Continue
Increasingly, the Chinese are buying more wine for personal consumption rather than just buying them as gifts. This is despite the fact that they have to pay higher prices due to taxes and a local mismatch of supply and demand. In fact, you could buy two bottles of the Château Lafite Rothschild 2000 in Singapore or Taipei, for the price of one bottle in Shanghai.
China’s stricter capital controls has also provided the impetus for China-based clients to look at alternative investments such as fine wine. In a country where consumer goods are often over-produced, the affluent in China are willing to pay top dollars for under-produced wines. If production quantities are maintained, fine wine indices could continue their ascent above the clouds.
