Generally, investors look for the stability of physical assets during economically troubling times. And in the middle of a global pandemic, there is cause to consider how best to invest in asset classes including fine wine.
Over the last 12 months gold increased in worth in response to a series of incessant geopolitical and economic uncertainties. From Brexit through trade talks and tariffs, the challenges have ended up with the coronavirus pandemic, and fears of a global recession.
Fine wine investment is still a good option thanks to a relatively resilient market
Fine wine is a physical asset in the same way as gold. However, it hasn’t risen in value in the same way. Mid-March 2020, the Liv-ex 1000 was down 4%, while gold was up 25% over 12 months. However, the fine wine market has had to contend with other mitigating factors that assets like gold have avoided.
Most buyers of fine wine come from the UK, the US, China and Hong Kong. Around six months ago, fine wine investing decreased significantly in the Far East due to the political unrest in Hong Kong. During the same time period, Brexit uncertainty led to more decreases in fine wine investment. The US tariffs on French wine also impacted sales.
Considering all of these factors together shows how resilient the fine wine market is. To still be standing after such an onslaught is testament to its longevity. The fine wine market is still relatively young compared with other asset classes, and now it’s facing coronavirus too.
Expectations from fine wine experts over the last 12 months, in the face of the challenges outlined above, is that there would be more interest in Burgundy and non-French wines would be outperformed. And this is roughly how the market has played out.
Making sound investment decisions in difficult times
Professional investors must leave emotion behind and focus on how to make money. How coronavirus will impact the market over the long-term can only be speculated on at the moment, but it’s logical to look back at how the market has rebounded after past challenges and assume it will do so again.
Earlier epidemics such as MERS and SARS had time limited effects on the market, and some investors will work on the basis that coronavirus will be the same. When considering tariffs, it’s not clear when the US will remove those on French wine. However, it seems that the US investor interest in fine wine is still thriving, albeit shifting away from French wine to other regions. This will actually have the net effect of broadening the market and could be seen as positive.
The situation in Asia is different. China has been hugely important in determining the journey the fine market has been on over the last few years. The combination of political problems in Hong Kong and the effective stalling of the Chinese economy due to Covid-19, there has been a sudden halt to fine wine buying. It would be logical to assume this will continue for the foreseeable.
Sitting tight seems to be the best option for fine wine investors. Whether the uncertainty caused by Brexit will rear its head again, or the virus continue to make the market challenging, we should be reassured by the resilience of the fine wine market over the last year. Prices should start to rise again when this period of crisis is over, and confidence returns.