FINE wine prices have soared to a record high as traditional investments are shunned in favour of vintage claret, which is now delivering a better return than oil.
While more conventional investments such as shares and property are falling, demand for the world's most famous wines has never been higher, as Russian oligarchs, Chinese billionaires, pension funds and corporate traders send prices soaring.
Win
e brokers say sales are up more than a quarter in the first three months of 2008, while stock markets have suffered. The Liv-ex 100, a London-based internet 'wine exchange' for 180 of the world's biggest wine traders, has seen its value rise by 34% in a year and its turnover increase by 62%.
In the same period, the FTSE 100 index of leading shares in London has fallen by 6.9% and Japan's Nikkei index has dropped by 22.4%.
In April the wine index hit an all-time high, passing the previous record set at the height of the bull market in July 2007.
Stuart McCloskey, director of fine wine brokerage Z&B Vintners, said: "The market for fine wine is trading furiously at the moment. Over the last few years wine has had an amazing run that has seen it outperform oil as an investment. In 2006, crude oil was up just 1.2%, while wine shot up 45.7%.
"Although crude oil recovered last year, outperforming wine by 8%, due to wine's status in the UK as a 'wasting chattel' it means it is exempt from capital gains tax, which overall makes it a much more attractive investment."
The principle for wine investment is simple: buy an immature wine and sell it when it is ready to drink. However, there are only about 50 wines and 10 vintages worth investing in, and French wines, primarily red Bordeaux, rule the roost. Not only does Bordeaux produce copious amounts of fine wine, the amount of wine available is limited by the vineyard area, which in the long term leads to demand outweighing supply.
The figures from last year show that some wines nearly doubled in value. Cases of Château Lafite Rothschild 2000 went from an average of £4,775 (during 2006) to £9,100 in December 2007, a 91% increase, while the 2003 and 1982 vintages rose by more than 76%. Lafite 1986, 1996 and 1998 were also in the list of the top 10 wines by performance.
The growth of the market has been attributed to a variety of factors including the slashing of import duties in Hong Kong, the success of the much publicised 2005 vintage and the emergence of a number of wine investment funds.
But most importantly it is the huge swathe of wealth creators and affluent middle class in Russia and Asia that have grown demand. For this reason there has been a surge of private banks, wealth managers, hedge funds and asset management groups recommending wine investment to their high-net-worth clients.
James Miles, founding director of Liv-ex, said: "Despite the credit crunch, growing demand and stable supply will underpin fine wine prices. Increased transparency has boosted confidence in fine wine as an investment and attracted new money into our market.
"The top châteaux are releasing less wine than they were, but Russian and Chinese consumers are buying and drinking more and more."
But the market can be fickle. The wine investment market is unregulated and has had a number of high-profile cases in the last decade in which investors have been persuaded to pay over the odds for wine they thought would produce high yields. Values can also plummet, as they did by 20% in 1998 after the Asian financial crisis of that year. There have also been scandals, with small investors buying cases of Bordeaux wines from the top châteaux which turned out to be worthless counterfeits.
The full article contains 655 words and appears in Scotland On Sunday newspaper.
