Fine wine's days as a safe investment could be numbered, as the credit crunch takes a bite out of Bordeaux's best

Published on Thursday 26 March 2009 15:28

ON MY most recent visit to Saint-Emilion, the pretty, perfectly formed medieval village on Bordeaux's Right Bank that is home to majestic, dark-purple, tannic wine, I spent a great deal of time scouring wine shops. With the world economy looking decidedly shaky, I wanted to gauge for myself the state of the market for fine wine.

If prices were holding up here, in the centre of the world's most expensive and sought-after wine region, I reasoned there was a pretty good chance that maybe, just maybe, Bordeaux's best could survive the recession.

Sure enough, in the first shop I entered, just off the town's square, I was directed to a row of wines all costing around 70 or more a bottle. "Haven't you seen the exchange rate?" I quizzed the wine merchant. His response was to bamboozle me with eulogies about the 2005 vintage – these were wines I simply "had to have" in my cellar; the prices, although expensive, were "sure to rise".

But I couldn't believe how much these wines cost. A case would have set me back nearly 800 – and for wines that not so long ago had come in at around 15 a bottle. And even 15, I thought, was a little steep. I made my excuses and left. "Good luck," I remember murmuring under my breath. Four days later, Lehman Brothers collapsed. The world is now a very different place.

One question I have been asked more than any other this year is whether fine wine is still a good investment. Well, it hasn't crashed in quite the same spectacular fashion as the banks, but it's doing its best to get there.

Fine wine's very own stock market, the Liv-ex (the London International Vintners Exchange), has experienced its own mini crash. From its inception in 1998 to the peak of the market last year, it saw spectacular rises of more than 183%. For some of the top wines, the growth was even more astonishing. The value of Chteau Lafite 2000 rose 437%, while at the height of the market Chteau Latour 2005 shot up from 4,000 a case to 10,000 in less than two years.

But prices are down. Between June and December last year the Liv-ex index fell 22%. The market has recovered a little this year (mainly, one suspects, because many private individuals are offloading their portfolios in return for cash), but whether it has bottomed out is still uncertain.

This week the world will once again turn its attention to Bordeaux for the 2008 en primeur campaign. Tomorrow morning the world's press, wine merchants and brokers will make their annual pilgrimage to the chteaux of the Mdoc and Saint-Emilion to taste last year's vintage. A few days later they will publish their tasting notes, and the chteaux, having had time to digest the information, will set their prices and offer the wine to the open market. For the Bordelais the advantage is clear: they get their cash a year early. For the customer, it is a chance to secure their favourite wines at a good price and, in some cases, to make a small profit. If the vintage is as good as 2005's, for example, the prices can rise very high.

This year's campaign is already running into trouble, though. Not only has the exchange rate made it a very unattractive investment for British buyers, but the weather reports do not look good. In perhaps the ultimate snub, Farr Vintners, our largest fine-wine investor, is not even bothering to go. Some London-based merchants are predicting price reductions of 50%, but even that, they reckon, will not be enough to revive the market.

In this economic climate cash is king, but I still think there is value to be found in Bordeaux's back vintages, especially the 2004s – a vintage which in my opinion has never received the recognition it deserves. Of recent vintages, 1990, 1995, 1996, 1998, 2000, 2001 and 2005 are all worth seeking out. For purely investment terms, stick to Bordeaux's big eight: Lafite, Latour, Margaux, Haut-Brion, Mouton-Rothschild, Ptrus, Ausone and Cheval-Blanc.

In Saint-Emilion the wine merchants must be chewing their fingernails. At a time of such uncertainty, only one thing is sure: en primeur week will be significantly less busy than last year. As for selling bottles of wines at 70, I offer the same advice I did pre-credit crunch: good luck.