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US election could shape demand for Bordeaux and Burgundy

The result of the US election is almost certain to have a material impact on the wine market, with the expectation that a Biden government will reverse the European trade tariffs imposed by Trump.

Having already seen a slowing of trading activity in Italian wine and Champagne, the two regions which have most benefited by being exempt from the US trade tariffs, Matthew O’Connell, head of investment at BI, said: “It is our expectation that we could also see a significant uptick in supply of US wines, which has been lower recently, if US collectors (and indeed US-based merchants) see the potential to re-enter the market to purchase French wines, particularly Bordeaux and Burgundy, without tariffs."

The overall outlook for Bordeaux and Burgundy was “indeed very favourable in our view”, he added, pinpointing a number of factors likely to drive positive momentum over the next 12 months. 

“Already noting the impact of a Biden victory, we are also seeing renewed demand from across Asia, with the region seeming to move on from the effects of the pandemic - Asia represented 50% by value of BI’s trading in Q3, significantly above the usual proportion,” he said. 

In addition, BI had in recent months seen investors “very much” taking comfort from “yet another difficult macro period during which wine again  demonstrated its resilience, something which has led to significant capital inflows”.

The Q3 report also noted that the dip in younger Bordeaux in April and May had reversed itself to a “significant extent”.

Meanwhile, while not at the front of the pack in performance from an index perspective, it stated that Burgundy was “particularly noteworthy” for the greatly increased trading volumes BI had seen - “not quite back to 2018 levels” but Q3 being up 50% plus on Q3 2019.

“This is somewhat Asia-driven but as is so often the case, buyers are actually much more diversified than one would think from the outside.”

Having commented on an optimistic outlook previously, the renewal of focus on Burgundy had not come as a “particular surprise” to BI, with the main difference versus movements across 2015-2018 that the focus was more prominently on blue chip names, with interest in second tier producers remaining subdued, it said.

From a vintage perspective the performance was more balanced though, “such that while we still believe that there is likely to be more potential for performance in top vintages during the coming couple of years, we have seen good interest in 2011-2014 and also 2017”. 

Burgundy, it said, was a fine example of the point that index performance “never provides the full story".

“We have seen a number of particularly compelling exit prices from blue chip Burgundy positions in recent months, such that the slight gain in a Burgundy index masks much more interesting performance derived from stock picking, as exhibited by a review of selected actual traded prices."

Bordeaux meanwhile had shown an interesting combination of price recovery and increased buyer interest, but also relatively low liquidity, with the result that trading volumes had been “healthy, but could have been two to three higher if there had been access to stock – at the prevailing market prices at least”.