Amid the increasing economic gloom in the West, China could hold the key to increased returns for investors prepared to explore the Eastern markets as they grow in affluence and confidence.
Wine in China is seen as a symbol of a desirable and sophisticated urban lifestyle and is, at the top of the Chinese social hierarchy, a key status symbol. As the Chinese economy continued to boom between 2009 and 2010, China’s wine imports increased to 125.1 million cases, an increase of 34% in just a single year. In the fine wine market at present, it appears that it is the East that is buying while the West is investing. Approximately 50% of all fine wine purchased in the UK will be exported to China.
One of the reasons for the success of fine wine as an investment is its relative imperviousness to depreciation. A case of fine, first growth Bordeaux will hold its value even if the value of the sterling used to purchase it tumbles against the dollar or the yuan. Fine wine has on average offered a year on year return to investors of 13% with less susceptibility to fluctuation than equities. In the 2008 crisis, wine lost 20% of its value compared to a 25% drop in the price of oil and a 50% drop in equities.
Global wine consumption is expected to increase over the next few years and fine wine will make up about a quarter of the value of this consumption. Investors should generally limit themselves to wines with limited production capacity such as Bordeaux and Burgundy. Supply in these areas simply cannot rise to meet increased demand and therefore will continue to appreciate in value.