2015 Fine Wine Predictions: Bordeaux (1/2)

2014-12-15

Bordeaux re-evaluated

Bordeaux’s steady decline from its broad-based peak in the summer of 2011 has led investors to reappraise the role of red Bordeaux, and especially the First Growths within their portfolio.

Whereas before 2010/11 top red Bordeaux might have accounted for 90-95%+ of all wine investments, these days diversification is seen by many as much more important as a hedge against volatility.

Market watchers now see buying opportunities on the back of 4-5 year lows and expect the Bordeaux market to move up in the next year. This is a likely scenario in respect of Classed Growth Bordeaux from the best years and First Growths from the lesser years, barring near-term risks posed by economic and geo-political externalities.

Sentiment towards Bordeaux will improve as prices bottom out. From 2008 onwards many new participants entered a frothy market. Several have now exited (e.g. Wine Networks owned by a Korean Telco) and many of the cold-calling wine investment companies that profited from a fast-rising market have gone bust – all of which have caused price falls to accelerate as stock was dumped. This unwinding has been necessary and essential for the market to resume normal functioning.

Looking ahead, prices of back vintages will start to firm up as channel inventories need to be refilled and as consumer confidence slowly rebuilds. Calling the bottom of a market is notoriously problematic, but back vintages are looking more interesting, right now, than at any time in the last 5 years.

Futures market in the balance

The new Bordeaux release of the 2013 vintage was the damp squib that everyone predicted and confirmed that the en primeur (futures) market is moribund.

Looking forward, 2014 is promised as a good to excellent vintage that would normally see prices rise. This time around it will need to be different: a moment of truth for the en primeur system.

As long as top wines are favourably priced at a discount to 2013 releases, en primeur may spring back into life, and the rest of the secondary market will be given further impetus. To this end a strong dollar will help.

The question is whether Chateaux still value the role the consumer plays as stockholder or whether that role is being taken for granted. There are only two reasons to buy young wine before it is bottled: either because it will be difficult to find in the future or because it’s better value to buy early. For Medocs and Graves, scarcity isn’t an issue, so it has to be much cheaper than when it is available in bottle for consumers to buy en primeur.

This is an extract of our report 2015 FINE WINE PREDICTIONS