Geopolitical uncertainty, 25% tariffs on European wines, and the latest dislocation caused by Covid-19 have all weighed heavily upon sentiment in the fine wine market. Nonetheless, trade has endured – at record levels (Fine wine goes digital) – and prices have remained relatively resilient on the face of it.
The above chart shows the Liv-ex Fine Wine 100 Index against the monthly average discount of transaction prices relative to the market price. While there has been a quiet pressure on prices since the start of the year, we have seen the discount between transaction and market prices increase since the global lockdown began in mid-March. Today it stands at 6.1%. As collectors reduce spending in reaction to (or anticipation of) a recession, sales naturally decline and the first thing to move, in order to find the buyer, is price. Economics 101. Throw in volatile exchange rates and risk aversion rises.
But weak markets have always tweaked the interest of long-term buyers. The Liv-ex 100 has returned 205% over the past fifteen years, despite being 18% off its 2011 peak today. Within that period the index has swooned as much as 25% (when Lehman Brothers collapsed in October 2008). Collectors, merchants, retailers and indeed growers are now faced with a choice. Those able to weather the storm may choose to hold or even capitalize on buying opportunities. But for most, keeping turnover ticking over will require lower prices and the opportunity to reinvest in stock at the new level. Prices may continue to soften, but as they do, buyers, both short and long-term, will come knocking. What’s your price?