Liquid gold just the goods in the east

Garry White

 

December 21, 2010

THE price of fine wines, like many commodities, is being determined by China - and demand from the country's new millionaires remains insatiable.
But it is not only rising wealth that has caused a rise in Asian wine sales. Two years ago Hong Kong scrapped all duty on wine and beer and became the centre of the world's fine-wine sales.
The figures speak for themselves. Data published yesterday shows that of Sotheby's total worldwide wine sales this year, 60 per cent occurred in Hong Kong. The auction house sold wine worth about $88 million this year, of which $53 million was in Hong Kong, $21 million in London and $14 million in New York.
In fact, the price of Lafite Rothschild 1982 has shot up by more than 60 per cent this year, according to the wine blog Liv-ex. That compares with a rise of just 25 per cent for gold. Over the past 10 years the price is up 1000 per cent.
By Liv-ex calculations this means Lafite Rothschild 1982 is now worth eight times its weight in silver and costs the equivalent of half a tonne of copper.
It says: ''Gold is still more expensive than Lafite by weight, with one bottle of the First Growth equivalent in value to four ounces (123 grams). Yet despite the rapid appreciation of gold prices in recent years, the same bottle would each have been worth just 1.5 ounces 10 years ago.''
There is a widespread misconception that the Chinese do not buy wines for investing but to drink. ''The Chinese certainly pull a lot of corks, but usually of the older vintages,'' says Serena Sutcliffe, head of worldwide wine at Sotheby's. ''The Chinese market is certainly having an impact at the top end.''
The question of future value of these wines will be determined by supply and demand.
''The problem with fine wines, unlike stocks and shares, is that once it leaves the chateaux and is sold, it is very difficult to track,'' says James Fletcher, of Albany Portfolio Management, which advises on investments in wine.
''A lot of this wine is drunk in China, but how much is actually drunk and how much is saved is still an unknown quantity.
''There are about 800,000 millionaires in China and about 100,000 cases of the good stuff is produced each year. The supply of Lafite cannot be increased because of 1855 appellation laws - and demand is increasing so fast it is obvious that prices will rise.''
David Elswood, Christie's international director of wine for Europe, also thinks that the Chinese are more interested in wine as an investment. ''The typical Chinese buyer is thought of as a drinker, but there are just as many speculators. There could be a bubble brewing in fine wines in China, but a lot of people are hoping that it will inflate further.''
Telegraph, London