Imagine a financial market where prices have collapsed by more than 30 per cent in the past three years, where a hatful of investment companies have gone to the wall and investors are reportedly nursing losses of more than £100m. It sounds like a full blown crisis, doesn’t it? But this isn’t Chinese equities or Russian bonds. This is the market for fine claret, otherwise known as the collapse of the Great Bordeaux Bubble.
This is a tale of greed and insanity, of people blindly hitting the bottle and ending up with the most almighty financial hangover the wine industry has ever known. Thousands of investors who thought they could take a punt on Bordeaux have ended up seriously out of pocket and left with the unenviable choice of selling at a massive loss or pulling a few corks on their “investment” to dull the pain.
But after every financial rout comes opportunity and there are signs that maybe, just maybe, enough sanity has returned to the world of Bordeaux for brave buyers to return to their favourite tipple.
In the world of wine, fine Bordeaux stands more or less alone as a tradeable asset. The first and second growths such as Chateau Latour, Lafite, Petrus and Cheval Blanc are bought and sold by the case at world market prices. You can buy or sell at auction or, increasingly, through online trading sites. Some cases of the stuff can change hands a dozen times or more before any of it actually gets drunk.
Traditionally there were a few unwritten rules in the claret market. Firstly, that it was always better value to buy en primeur, i.e. when the wine has just been made and before it’s put into bottle. You have to wait a few years before the wine is delivered and ready for drinking but you get it a bit cheaper and can even sell off some of your en primeur wine later to help pay for the stuff you actually want to drink.
Rule two was that prices rose steadily, particularly for the good vintages. Rule three was that the weaker vintages were priced relatively cheaply by the big Chateaux, allowing those of us with expensive tastes but tight wallets to drink big labels for less.
Then sometime towards the end of the last decade, all these rules went out of the window. Madness gripped the market. Prices rocketed to silly levels as word went round that the Chinese would pay any money for big wines. Investors looking for a safe haven after the financial crisis, when stocks and bonds had crashed, saw wine as their saviour and piled in. Then there was the breathy excitement that both the 2009 and the 2010 vintages were potentially the best for 50 or a hundred years. And so the wine bubble grew and grew.
Bordeaux Index’s eponymous index, launched in 2008 at 100 points, reached an all-time high in August 2011 of more than 150, meaning that any clever investor who bought and sold in those three years made a 50 per cent return. “People thought China was the goose that would keep laying the golden egg forever, and that this was a quick way to make money,” says Giles Cooper, head of marketing at Bordeaux Index.
This, of course, prompted people to talk the market even higher, safe in the knowledge that wine investment is not regulated by the FCA. Dozens of wine “investment schemes” were launched that promised superior returns to shares or bonds. Today many of these companies and schemes have folded, leaving a trail of losses.
For since the heady days of 2011, the market has been all one way – down. The Bordeaux Index fell back relentlessly to 110 last August, although it has shown some stability since. Wine prices are pretty much back to where they were seven years ago, doing what they always used to, which was to track inflation. The Chinese have proved to be rather smarter buyers than the punters imagined.
Perhaps the most dramatic fall from grace in this claret mania is the collapse of Premier Cru, which claimed to be Britain’s oldest wine investment scheme. Founded in 1995, it grew by making bold claims about the investment attractions of fine wine. During the bubble, its claims became shrill. Its website, which is still forlornly available, proposes an absurd scheme called “Home Cellar”, using wine to repay your mortgage.
For all its claims, Premier Cru closed last August, transferring its customers to another outfit called Cult Wines. They in turn are demanding a breathtaking five per cent annual charge for looking after customers’ wines. There is also some talk of wines missing from some portfolios, which Premier Cru has offered to make up from the duff 2013 vintage. All in all, it’s a sorry tale.
So what next? There are signs that some sanity has returned to prices just as the wines from the excellent 2000 and 2005 vintages are becoming drinkable. The top wines are admittedly still out of reach to all but a few. A case of Chateau Margaux 2000 at the height of the bubble cost £10,500. Today it is down to a barely attainable £6,200, still more than £500 a bottle. But slightly less grand wines are looking almost affordable, with some below the £1,000 a case mark. Cooper recommends the Chateau Montrose – which was £1,280 and can now be found for £970 a case (before tax and duty).
The real bargains may still be to come. The Bordeaux Bear Market has also coincided with a series of poor vintages – the 11s, 12s and 13s. Yet when it came time to sell them, the Chateaux and the negotiants overpriced them wildly, which meant they simply didn’t find buyers. “It is all still sitting there in their cellars by the Gironde and they are running out of space,” says Cooper.
2014 is (praise be) said to be a better vintage and the trade is gearing up for the annual tasting fest in April, crossing fingers and toes for a better reception. But if it is better, the smart money says that the negotiants will decide to shift some of the earlier vintages to make space and free up some cash. That could, we all hope, bring some bargains onto the market of fresh, short-lived wines from these unheralded vintages.Well, let’s hope so. But for now it is worth just remembering the basic truth – wine is for drinking, not for repaying your mortgage.