Liv-ex August Market Report released

September 6, 2022

The Liv-ex 50 and Liv-ex 100 both declined in July, as the wider global economic outlook continues to take its toll on fine wine. The market has been under pressure for some time now, with buyers retreating in the face of slowing economies and uncertain markets.

However, there are still opportunities to be found in the current climate. In this article, we’ll take a look at the findings of the latest Liv-ex market report and see what they mean for wine investors.

The first signs of decline in the market

The 0.3% dip during July is the first time the Liv-ex Fine Wine 100 has declined in more than two years – and it’s a sign that the global economy is starting to have an impact on the wine market.

This decline was mirrored in the 0/9% decline in the Fine Wine 50, which tracks the daily price movements of the Bordeaux First Growths.

While these declines might seem worrying, it’s worth putting them in context. The Liv-ex indices are still up year-on-year, and the declines we’ve seen in recent months are relatively small.

It’s also worth noting that the wine market has held up better than many other asset classes in the current climate. For example, while the S&P 500 is down around 8% since compared to last year, the Liv-ex Fine Wine 100 has had 24 consecutive months of rises from June 2020, increasing by a total of 36.1%

It’s also worth noting that Liv-ex Fine Wine 1000 rose 0.4% during the same time period showing that, while the market for the most expensive fine wines dropped slightly during July, the overall market still increased.

This is a positive sign for the fine wine market and demonstrates that, while there may be some slowdown in the near future, the long-term prospects for the market remain strong.

Given the overall diversity of the Liv-ex 1000, which represents wines from over 60 countries and regions, it’s perhaps not surprising that the secondary wine market is once again proving resilient to global economic headwinds.

Champagne continues to trade high

Bucking the overall downward trend, Champagne came in with a record high in July, totalling 16.7% of the total market. We’ve already highlighted the popularity of Louis Roederer Cristal 2004, which was the most traded wine last month.

By comparison, Bordeaux’s share of the market has fallen to just below 40%. This is perhaps unsurprising given the challenges that the region has faced over the past few years. However, it’s worth noting that Bordeaux still accounts for a significant proportion of the global fine wine trade.

Burgundy’s share also dropped from 27.9% to 24.6%. However, the region has consistently been one of the most traded on Liv-ex so far this year and is currently the second most valuable region by value, behind Bordeaux.

Global standouts

While the Rest of the World 60 index did drop in value last month, it was only by 0.8% and some wines on the list traded significantly higher.

Screaming Eagle’s 2011 vintage was up 14.0% in July, with prices reaching £38,429 per 12×75. Similarly, Taylor’s Port was up 12.0%, trading at £468 per 12×75 – its highest value since April 2011.

The Spanish Vega Sicilia ‘Unico’ also traded well last month, with all vintages either increasing or holding their value. The 2006 vintage was up the most, climbing by 8.0% to £2894 per 12×75.

Chinese traffic causes the Australian wine market to shrink

The burgeoning trade war between China and Australia continues to impact the Australian wine market, with exports to China falling sharply in 2022.

According to the Drinks Business, the value of wine exports to China fell by 10% in the 12 months to June 2019, while the volume of wine exported declined by 625 million litres.

This represents a significant reversal from the strong growth seen in previous years – between 2014 and 2018, export values more than tripled, while volumes increased five-fold.

This has wiped AUD$2.08 billion off the value of Australia’s wine exports, and comes as China continues to impose punitive tariffs on a range of Australian products, including wine.

The trade war is just one factor contributing to a tough operating environment for Australian wine businesses at present. Drought conditions have hit many regions hard, while the country is also dealing with the fallout from the devastating bushfires that ravaged large parts of it earlier this year.

However, the decline is being primarily attributed to the Chinese government’s decision to place an import tariff of between 116% to 218% on Australian wine in NMArch 2021, in retaliation for the Australian government’s decision to ban Chinese telecommunications giant Huawei from participating in the rollout of its new broadband network.

Until the imposition of these tariffs, China had been one of the most important export markets for Australian wine, accounting for 39% of all Australian wine exports.

That being said, the industry is targeting new and growing markets to replace its dependence on China, with Southeast Asia being a major focus. In fact, exports of Australian wine to Southeast Asia have already increased by 51% in the first half of 2021 compared to the same period last year, bringing in an additional AUD$314 million.

Focussing on newer markets such as Singapore, Malaysia, Thailand, India and New Zealand is a key strategy for the industry to maintain its export momentum in the face of these headwinds.

So while the short-term outlook might be challenging, it seems that the Australian wine industry is up to the task of weathering the storm.

Should investors refocus their efforts?

Fine wine has always been considered a safe harbour during turbulent times.

While the last 12 months have been tough for many industries, the wine industry has largely managed to weather the storm.

However, looking ahead to the next 12 months, it seems that the global economic outlook is starting to weigh on fine wine. The Liv-ex 50 and Liv-ex 100 both declined in July, and it seems that the pressures of the wider economic outlook are starting to take their toll.

So what does this mean for investors? Should they be refocusing their efforts elsewhere?

Well, realistically, these changes in the market should be viewed in a wider context. As we’ve already mentioned, the Liv-ex 1000 actually rose by 0.4%, while the Liv-ex 50 and Liv-ex 100 are both trading at their highest levels on record.

Putting these changes in that context, it’s clear that the market is still in a good place, despite the global economic concerns. So for investors, it’s important to stay calm and remember that these fluctuations are to be expected.

If we take Burgundy as an example, the Burgundy 150 has risen 57% in the last three years. The Bordeaux 500 is also up 9.4% compared to last year. These areas have always been considered to be relatively safe havens in terms of fine wine investment, and it’s clear that they are still performing well.

However, in addition to providing stability, the figures also show that there is still good potential for growth in the fine wine market.

The Champagne 50 index has actually outpaced the Burgundy 150 for over a year now, with sales of Cristal, Krug, Dom Pérignon and Salon driving this growth. This kind of rapid rise in popularity demonstrates that there is still a lot of potential for growth in the Champagne market and some fantastic opportunities to profit from smart investments.

One of the primary benefits of the wine market is the low bar to entry. To get started, all you need is a small amount of capital and a good understanding of the market. You can then start building a portfolio that has the potential to generate healthy returns over the long term.

The sudden spikes in the value of the Vega Sicilia ‘Unico’ show that there is still a lot of potential for growth in the Spanish wine market. The 2006 vintage rose in value by 8%, putting it at £2984 per 12×75.

What this demonstrates is that there are still healthy investment opportunities outside of the top of the market. The low bar to entry makes the wine market an ideal place for first-time investors to get started.

Overall, despite the small dips in certain idiocies, the fine wine market has stayed remarkably resilient to the wider economic forces at play. This is a testament to the potential of wine as an investment, and we expect to see a continuation of this stability in the months and years ahead.