MD & Founder of Fine Wine Merchant Bordeaux Index
AS THE wine market reluctantly drags itself back to work after the long summer break we approach what has become one of the defining periods of the trading year, the run-up to Asia’s mid-autumn festival of the moon, which falls on 22 September this year.
This celebration not only provides a welcome boost to trade but also gives a real insight into both the shape and level of demand over coming months. In other words, it is a key indicator of confidence.
This year carries more than its fair share of uncertainties, but the early order-book suggests strong reasons to be positive. Yes, there are clear risks: first, the continuing worries about weak data coming out of the US. This, coupled with the nascent efforts of the Chinese authorities to curtail credit availability, provides a serious challenge to macro confidence in this early phase of global economic recovery. Furthermore, the ongoing concerns about the health of the Eurozone economy do little to boost sentiment in the markets. And for a discretionary good such as fine wine, confidence is a crucial intangible.
Further reason for caution can be found in the hangover from a riotously successful 2009 en primeur campaign. As mentioned in last month’s column, this vintage generated an enthusiasm that, at times, bordered on the febrile, and, as is so often the case, judgement was the victim as buyers splurged more of their annual wine budgets than was entirely wise.
All things being equal, such excess will mean cutbacks through the back end of the year. This excessive exuberance applies less to the Asian market, as their en primeur participation was largely restricted to a handful of first growths and leading right-bankers.
However, here too there is reason for sobriety as prices for the first growths have settled at some 15-20 per cent off the peaks achieved in the heady days of July. Speculators with recently scorched fingers will presumably act with a little more caution whilst the pain remains fresh.
Despite the risks, over in the bull corner there is disbelief that confidence is even in question. Indeed, the dominant sentiment is one of optimism as a combination of low inventories and new market players as well as strong momentum in the first half of the year – The Bordeaux Index (BI) stands some 21 per cent up on the year to date and shows growth in 16 of the last 17 months – suggest that this year will close with a rousing crescendo.
So what does the early order-book show? Firstly, and most importantly it tells us that Asia, and China in particular, is consolidating its position as the dominant player on the block. BI is not unusual in seeing the percentage of sales to Asia doubling to over 50 per cent during the last couple of years. This is a trend set to continue.
Secondly, the consumption and gift-giving habits of Chinese buyers remain in force with a handful of brands dominating. Despite the heady prices they now command, Lafite remains the headline story with demand roughly equal to the sum of the other four first growths.
Looking a little further along, there is a strong seam of support for the cheaper end of the first-growth spectrum and some interest in leading Burgundy. In short, a very familiar path in a slowly maturing market.
While caution is appropriate, the wine market suggests that to view the world solely through the gloom of the US and the Eurozone would be wrong. The bright Asian moon presages good times ahead.