Champagne is the pick of the crop in the wine market
About two-thirds of final demand for the world’s best wines comes from dollar-linked economies, so, given the dollar’s weakness in 2004, it’s been a tough year for the fine-wine market. Still, the quality of some new vintages coming onto the market did lift the gloom a bit. Burgundy (2002), Bordeaux (2003) and Brunello (1999) were all well received and precipitated pockets of strong price performance.
The best-performing index in our family of indices last year was the Liv-ex Claret Chip index. This is made up of the best of the collectable red Bordeaux wines, which comprise the 33 Bordeaux First Growths from 1982 that have at least 95 points (out of 100) from Robert Parker - the influential American wine critic. In 2004, the more concentrated and the better the basket of wines, the better your chance was of making a positive return. In our Liv-ex 500 index, only 37% of wines appreciated in the year, but 50% showed gains in the Liv-ex 100 and 61% in the Claret Chip index, which rose a total of 10% (17% in US$), outperforming both the FTSE 100 and S&P 500.
At the level of individual wines, only one wine from the fabled Bordeaux 2000 (Lafleur) made it into the top 20 price performers for 2004. This contrasts with 2003, when 2000s took 11 of the top 20 spots. In fact, in the last 12 months, this state of affairs was turned on its head with 2000s accounting for half of the bottom ten. Instead, at the top of the list was vintage Champagne, with Krug’s new release, the 1990 vintage, and the irrepressible Louis Roederer Cristal taking two of the first three places. The balance was reserved for drinking claret. In particular, the top investment wines from 1982, 1986, 1989 and 1990 did well against younger wines, which our analysis has consistently suggested are relatively expensive.
And what of the year ahead? This time last year, we noted that the string of good vintages meant there was no shortage of high-quality young wines. We were also concerned that these vintages were too pricey, especially relative to the less abundant back vintages. Not much has changed. We still expect young wines to get cheaper. The outlook for the global economy is less favourable than at the start of last year and it does seem likely that the US currency will continue to weaken over the medium term. This will put pressure on European growers to lower prices.
In most of Europe, feast is following famine. In Bordeaux, they have harvested the biggest crop since 1923. It is a bit early to comment on the quality of these wines, but a big crop and a weak dollar will mean that the Chateaux will have to cut prices. This could then hit the prices of other recent vintages. All in all, 2005 looks like a challenging year for sellers of young wines - for investors, older wines are a safer bet.
Our pick for the year? Champagne - particularly vintage Krug, Dom Perignon and Cristal. It is a simple case of demand and supply. Expect Krug 85/88, Dom 85/88/90 and all Cristal vintages to do well.
Justin Gibbs is director of Liv-ex.com.
