The fine-wine market presents a good entry opportunity now after undergoing a correction recently, with the alternative asset likely to continue to offer solid returns to investors in the coming years, according to Vinum Assets, a specialist investment wine broker.
“We’ve already gone through the bottom and [the market] is in recovery mode now. It’s time to enter the market again as the supply and demand fundamentals remain favorable,” Justin Alexander, founder of Vinum Assets, told the Hong Kong Economic Journal’s EJ Insight in an interview.
“Fine wine is last to be affected during an economic crisis, but the first to show signs of recovery,” Alexander said, noting that the fine-wine market recorded 14.4 percent compound annual growth over the last two decades.
Vinum Assets is a full trading member of Liv-ex, the fine-wine exchange based in London.
The barometer for fine-wine prices, the Liv-ex 100 Index, stood at 258.46 points at the end of November, off nearly 30 percent from its June 2011 peak of 365 points. Like gold, fine wine is a tangible asset that is immune to inflation and its value cannot be eroded by the actions of governments.
Alexander pointed out that the fine-wine market experienced a steep, rapid rise in prices between 2009 and the summer of 2011, mainly driven by increased demand from China for a number of top Bordeaux wines such as Petrus and Le Pin.
Investors should look for the so-called “investment-grade” wines that are regularly sold in secondary market, basically Bordeaux or Burgundy vintage wines and a few champagne selections, he said. The investment process usually takes three to five years, the veteran wine trader said.
For first-time investors, it is better to buy second-tier wines that have a larger customer base — such as Pontet Canet 2009 which is priced below HK$22,000 (US$2,838) for a case of 12 bottles, he said.
Alexander has a wide range of private clients from various walks of life, including bankers, doctors, senior executives, who usually have a wine investment portfolio starting from HK$100,000.
Hong Kong auction center
The Hong Kong government has abolished an 80 percent import tax on wine, providing a catalyst for the former British colony to establish itself as a wine trading and distribution centre for the region, particularly the Chinese mainland.
“People in Hong Kong are very knowledgeable about fine wine, and there is high concentration of expertise here from consumer perspective,” Alexander said, adding that the city is an “efficient” marketplace to trade fine wine.
Hong Kong has kept its title as the largest wine auction center in the world for three consecutive years since 2010, with the total auction sales amounting to HK$1.2 billion (US$154.8 million) in 2012, according to Wine Spectator, a New York-based lifestyle magazine that focuses on wine and wine culture.
In addition, Hong Kong is the only place in the world that has an agreement with China that allows wine from the city to go into the mainland with favorable tariff treatment.
“Potentially in next five to 10 years, we’ll see more trade happening through Hong Kong than London,” Alexander said, adding that the prospects will partially hinge on demand growth from China.
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