Rosalind Evans
The allure of fine wine as an investment has been growing steadily for years, luring investors seeking refuge from inflation, economic instability, and stock market fluctuations. The availability of easy-entry online brokerages and advisory services has recently made this unique market more accessible than ever.
However, after a long period of appreciation, the cost of fine wine is now seeing a downward trend, posing a challenge to recent market entrants.
In recent years, wine as an investment opportunity has broadened its appeal, mainly due to the rise of digital wine trading platforms. High-profile celebrities, including Jay-Z, David Beckham, and Stephen Curry, have publicly endorsed wine investment, further enhancing its prestige as an asset class.
Cult Wines, a prominent wine trading platform, reported a gross sales revenue of over $116 million in 2022, a year-over-year increase of 32%. Currently, the company manages assets worth $375 million in fine wines, a significant 45% increase from the previous year.
The surge in wine investment is understandable. Fine wines have demonstrated a compound annual growth rate of 10% over the past 30 years, as per the Liv-Ex investable index that tracks the prices of fine wines. With a low correlation to the stock market, wine is an effective hedge against volatility and generally holds its value well against inflation.
However, under the current economic strain of rising inflation, high-interest rates, and the looming risk of recession, even the robust fine wine market seems to be faltering. Cult Wines recorded a 0.83% drop in the fine wine market in June, reflecting an overall downward trend this year after substantial gains from mid-2020 to 2022.
To date, the company has reported a 2.13% drop in the value of its index of fine wines, while the S&P 500 has seen nearly a 16% increase.
“Although fine wine investments aren’t directly affected by interest rate shifts or living cost hikes, in a high-interest rate environment, investors may prefer to allocate resources to cash or fixed income rather than alternative investments,” commented Atul Tiwari, CEO of Cult Wines Americas.
Cult Wines provides advisory services, purchases, stores, and sells fine wine for prospective investors, with a minimum investment threshold of $10,000.
Leading the downturn is Bordeaux, which saw the most significant price drop among all OK wine categories in June. This trend is concerning, given that Bordeaux is a critical player in the fine wine investment market, known for its price stability.
The Cult Wines Bordeaux Index reported a 1.22% fall in June and over 2% year-over-year.
The drop is believed to result from the pandemic, new regulatory measures, and rising geopolitical tensions, reducing Chinese investment in Bordeaux. However, Tiwari attributes this trend more to changes in exchange rates.
London, as the most active and diverse market for fine wine, conducts most of its trading in pound sterling. “Compared to the US dollar and yuan, the strengthened British pound means investors’ capital doesn’t stretch as far as it once did,” he explained.
Despite the hiccup in the wine market following the collapse of Silicon Valley Bank earlier this year, the bank’s wine division has flourished under the new ownership of First Citizens Bank, according to Rob McMillan, founder of SVB’s wine division.
California wines are a ray of hope amidst the struggling wine investment market. “California has been showing strong performance in the past month. We see potential with California wines,” expressed Tiwari.
In other news, PGA Tour officials expressed they had no alternative but to strike a deal with the Saudis. In a heated Senate hearing, PGA Tour and LIV Golf’s yearlong conflict, and their possible merger funded by the Saudis, came under intense scrutiny from senators.
PGA Tour’s chief operating officer, Ron Price, and board member, Jimmy Dunne, argued that the proposed merger is the best option to maintain some degree of control over the sport. “If we stand idle, we’ll lose golf to them. They can manage it,” Dunne warned the committee.
Industry experts closely monitor the situation as the fine wine investment market faces turbulence. Whether it’s a temporary hiccup or a signal of a more prolonged downturn remains to be seen. Despite the challenges, opportunities such as the burgeoning interest in California wines show that the sector still holds potential for growth and diversification. In the meantime, the players in this unique market will have to navigate the changing economic climate with care and strategy.
