10
time and historic market data and
shares their data through their website
and Bloomberg. According to Liv-ex, it
“collects merchant prices from its global
trading membership, which currently
spans more than 30 countries and six
continents”
15
. Its importance should
not be under estimated as its pricing
is used across the entire industry
and it has created an international
online market place which has become
the hub of fine wine dealing.
Robert Parker’s influence has become
substantial and he has grown to have
a significant effect on valuations and
therefore the entire market. Each
spring, Parker visits Bordeaux to taste
en primeur wines (wines which are
still in the barrel and have not yet
been bottled) before the chateâux fix
their prices. His ranking scores out of
100 are then published in The Wine
Advocate. The true effect on pricing is
debatable, but some studies suggest
a good Parker valuation could be
worth as much as 15% of the price.
7
However, this is set to change with
his recent announcement that he is
retiring from en primeur tasting.
Interestingly, those who dislike passion
asset investing because of its’ openness
to changes in taste, cite Parker’s
admission that emotions do matter,
contrary to the seeming objectivity
of the 100-point scale: “I really think
probably the only difference between
a 96-, 97-, 98-, 99-, and 100-point wine
is really the emotion of the moment”
16
.
Fine wine differs from commercial
wine in that it commands a strong
demand on the secondary market,
has the ability to improve in bottle
and preferably enjoys a long track
record of excellence. Critical opinion
also plays a part. Traditionally, only
wines that scored more than 90
points (from Robert Parker or his
peers) have been deemed to be
worth buying and this encompasses a
surprisingly narrow choice of wines.
APPELLATIONS AND
FINE WINE
The limited supply of wines which
can be deemed “fine wine” is under
the strict control of the Appellations
system, by which the production of
the highest quality wine is controlled:
Wineries, such as those in France, Italy,
Germany, Austria, Portugal and Spain
must follow stringent rules governing
the types of grapes used in their wines,
the area in which these grapes must
be grown (the “Appellation”), as well
as vineyard and winemaking practices
and restrictions regulating the amount
of wine which can be produced from
each acre of land. The regulations
vary from country to country, but are
generally enshrined in law, in France
for example, the Institut d’Appellations
d’Origine has authority under French
law, reinforced by EEC directives.
The system is intended to maintain
and enhance quality and the special
characteristics of the wines of a
particular area. Wine produced
under the authority of the Institut
d’Appellations d’Origine are entitled to
display the term “Appellation Contrôlée”
on their bottle labels as an indication
that the contents is wine of the best
quality and from a limited supply.
Classifications of some fine wine
areas goes back more than 100 years,
with changes to the rules very rare
and where no land is available for
further vineyards, impossible: The
Bordeaux Appelations are applied to
classifications put in place in 1855 and
for many years, Bordeaux in France
has stood out for producing the finest,
although not necessarily the rarest
wines the world has seen; the title
of rarest fine wine goes to Burgundy
with grand crus and premier crus
numbering from as few as 200 cases
up to a maximum of 3000 cases per
year. Nevertheless, the cap on supply
of Bordeaux is still notable, with
French law stating that only 177 cases
per acre of land can be produced and
some world famous vintages such as
Petrus only producing an extremely
low volume of around 2,500 cases
a year, although most cru classes
produce 10,000 to 15,000 cases per
annum and it is this level of production
that makes Bordeaux the most traded
secondary market for fine wine.
17
When you take into account natural
fluctuations, the popularity and rarity of
certain vintages increases even further;
“in its simplest term, a vintage is the
year a wine was produced. This matters
because the vine behaviour (phenology,
yield, grape quality potential) varies
from one year to another. This
variability is the result of changing
climatic conditions and is known in
viticulture as the vintage effect”
18
.
BORDEAUX AND
THE 2011 SLUMP
The fine wine sector is impacted
significantly by Bordeaux; Bordeaux
has been producing wine for two
millennia and the UK has been
Bordeaux’s largest export market for
at least 900 years.
15
The region’s wines
continue to be the starting point for
the serious collector and sit at the core
of many portfolios and it is estimated
about up to 80% of the world’s
investment grade wine is produced
in the Bordeaux region of France.
19
As a result Bordeaux prices can affect
the entire market: a price bubble began
to inflate in 2005 in the Bordeaux
market, with the release of what Robert
Parker called, “one of the greatest
Bordeaux vintages ever produced”. This
coincided with the Chinese government
introducing a stimulus package of 4
trillion RMB ($586bn) which made large
amounts of cheap money available
to the Chinese, who duly invested.
The Fine wine market also became a
more mainstream luxury item in China
following the abolition of import duties
in Hong Kong, meaning previously
“Fine wine differs from commercial wine in that it commands a strong demand on the secondary
market, has the ability to improve in bottle and preferably enjoys a long track record of excellence”
