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Bordeaux's fine wine market ripe for recovery, says Liv-ex chief

Published:  11 November, 2014

Four years of falling prices have brought the Bordeaux market to its "lowest ebb since the early 1970s", meaning now is a good time to enter the market.

James MilesJames Miles Liv-exJames Miles of Liv-ex sets out the case for fine wine exchanges

That's according to Liv-ex managing director James Miles, who also calls for a "well-priced 2014 vintage" which would be a "vital precursor to any kind of sustained recovery".

Speaking at the wine industry conference at the Hong Kong International Wine and Spirits Fair, Miles gave a presentation on 'Speculation is dead, long live speculation'.

Looking at the history of Bordeaux, Miles said evidence points to a "reasonably reliable boom and bust every 10 years or so", with the 1970s proving particularly "violent". But despite its tumultuous history, "fine wine has returned 4.1% in real terms (after inflation, storage and insurance costs) between 1900-2012, putting it ahead of art, stamps and bonds and only narrowly behind equities", Miles maintains. He said that fine wine is now so well-established that 25% of high net worth individuals have a wine collection which accounts for 2% of their wealth.

In the last decade, Miles said that "while booms and busts in wine are influenced by external factors - in this case, UK pension reform, the collapse of Lehman, the removal of tax in HK and the huge fiscal stimulus in China in 2009 - they also tend to be self-inflicted and tend to start and finish with successful and disastrous en primeur campaigns, in this case the 2005 and 2010".

Liv-exLiv-ex graph showing Bordeaux First Growth performance in the last decade

The current picture is starting to look promising, with the Liv-ex 100 index on the up over the past three months after 17 months of consecutive falls.

He points to a number of factors indicating that now is the opportune moment to invest:

  • Two and five year returns are at their lowest in 25 years, with Bordeaux and First Growths at their lowest levels in a decade
  • Fine wine has "dramatically underperformed", against other assets, including US equities and top New York property, suggesting it "may be of good value".
  • Hong Kong import numbers are up 8%

But Miles warned that en primeur campaigns must become more equitable, to date "the lion's share of the profits" have gone to the chateau. The 2014 en primeur campaign "just has to work" with "prices falling far further than many in Bordeaux currently appreciate".

After four tough years, he said value is returning to Bordeaux, given other regions such as Burgundy, Champagne and other global leaders have held up well in the interim.

What looks good

liv-exA buyers' market ahead for en primeur?


Miles warned that while Domaine Romanée Conti has outperformed Bordeaux's first growths by 100% since 2010, trade is down 60% this year, leaving "DRC looking a bit exposed".

Many Bordeaux wines still trading at depressed levels - Haut Brion and Margaux look particularly attractive, Miles claimed. Robert Parker's Magical 20 wines - ones outside the First growths but of similar quality, according to the influential critic, have also done "relatively well" and could be good bets.

He concluded saying "speculation plays a vital role in helping to set prices", but added that a "return to sensible prices" and more equitable share of profits in en primeur would "get Bordeaux out of its current rut". 

You can see the whole presentation here.

James Miles of Liv-ex sets out the case for fine wine exchanges