Fine wine has outperformed some of the world's top market benchmarks, according to Liv-Ex, but Hong Kong's role as a fine wine hub is at risk.

In the turbulent year of 2020, fine wine emerged as a strong hedge against market volatility and offered “unmatched” stability, outperforming some of the world’s top market benchmarks, according to fine wine trading platform Liv-Ex.

“Not only have fine wine prices risen, but wine has offered unmatched stability in this year of volatility,” the UK-based trading platform declared in its latest Fine Wine Market Report.

It reached the conclusion by comparing Liv-ex 100, an industry benchmark that tracks the top wines from around the world, to financial and stock market benchmarks, which are Germany’s DAX, the tech-led S&P 500, the London Stock Exchange FTSE 100 and Hong Kong’s Hang Seng.

Liv-Ex 100 v.s. some of the world’s main financial and stock market benchmarks (Pic: Liv-Ex)

At the close of November only the S&P 500 and the Liv-Ex 100 were in positive territory for the year, up by 4.65%. The DAX was flat, the FTSE and Hang Seng remained in negative territory.

In November, the index reached its highest level in two years, while trade by value touched a ten-year high, according to Liv-Ex.

While fine wine prices quietly rose, volatility remained relatively subdued. Wine traded within a very narrow price range, as indicated by the standard deviation in Chart 2.

Fine wine market volatility (Pic: Liv-Ex)

A contributing factor to the market’s stability has been an increase in liquidity. As more participants (and their wine) were drawn into the market, buying and selling became easier, reducing the drastic price movements often created by illiquidity.

This liquidity is reflected in the rising value of bids and offers. The total exposure (total value of bids and offers) reached a record high of £83 million, a £33 million
increase on last year.

At the end of November, the bid to offer ratio (i.e. the total value of bids divided by the total value of offers) stood at 0.62. Traditionally, a bid-offer ratio of 0.5 or higher suggests positive sentiment.

This year’s bullish fine wine market recorded in these indices is also a result of weakened sterling coupled with wine’s rising status as a desirable asset.

Asia slowdown

Hong Kong’s fine wine hub role is in question

Additionally, Liv-Ex noted in its report a slowdown in Asia market, which puts Hong Kong’s role as a fine wine hub into question.

The prolonged border closure for almost a year to the mainland also means that the traditionally deep-pocketed mainland tourists won’t be able to splurge their money on the city’s fine wines.

Meanwhile, parallel trading of fine wine from tax-free Hong Kong to mainland China across the border was essentially halted because of the border closure.

According to Liv-Ex, after analyzing buying over the past five years, it highlighted wo main themes: the Asian slowdown, with Asia’s share down from 25% in 2015 to 17%, and an uptick in US activity, up from 8% to 24%.

As a question mark hovers over the future of Hong Kong as a fine wine hub, a shift in the market can be observed, with the emergence of more active sellers from the region.

The Asian buying appetite has also shifted from Bordeaux towards Champagne, more affordable Burgundy labels, and Italy.

However, as China becomes the first region to return to post-pandemic normality (coupled with buying preparation for Chinese New Year), it is expected that the region will soon re-affirm its role as a major source of demand.

In the US, consumer appetite for fine wine, buoyed perhaps by record equity prices, has steadily increased, with Italy, Champagne and the Rhone firmly in buyers’ sights in 2020.

In 2020, most traded wines still come from more traditional fine wine regions like Bordeaux and Burgundy, but there are also activities involving wines from England, China, Hungary, Switzerland, Austria, Germany, Chile, Argentina and more.

Prices per bottle range from £4 to £21,000.

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