State of the Global Secondary Market - October & November 2008
Australian fine wine is performing well at auction despite the global financial crisis and the slowdown of the secondary wine market in the US, the UK and Hong Kong. Langton's online wine sales during October and early November attracted solid buyer interest and surprisingly good clearance rates. Buyer participation increased markedly towards the end of November resulting in excellent volume of sales and price realisations. While the secondary market is yielding positive results, Langton's predicts a recalibration of market expectations over the next six months.
Over the last few years vendors have surfed a remarkable wave of ever increasing price realisations. Aggressive vendor reserves for stellar and rare vintages, matched by strong demand, have shaped the international secondary wine market all year.
Burgundy and Bordeaux enjoyed spectacular results throughout 2008, many vintages and marques pulled up by the outrageous 2005 release prices. The sudden removal of wine taxation in Hong Kong and then Macau in early 2008 fuelled a rampant secondary wine market and created something of a gold rush. Asia, less price sensitive than the more cautious and established European and US markets, has become a major force with Hong Kong and China clients representing over 25% of the entire international secondary fine wine market. Russian oligarchs, Chinese entrepreneurs and loads of easy money have pervaded the auction rooms resulting in extraordinary auction results and record prices.
Motivated by a weak dollar and the lure of Far Eastern gilt, fine wine cellars removed from New York and elsewhere have been packed up and shipped to Hong Kong. Rarities such as 1945 Chateau Mouton Rothschild have arrived by the case load. There seems to be an awful lot of this 'Churchill of a wine' about. Speculation, opportunism and skulduggery are all in someway related to each other. In the US billionaire wine collector Bill Koch continues his crusade against the trade of counterfeit rarities through various lawsuits against collectors, supposed perpetrator Hardy Rodenstock and secondary market institutions. A court order has stopped one auction house from selling wine pre-1962 in New York. With such high stakes, provenance promises to become a major issue in future years. Both Sotheby’s and Christie’s have implemented a “verifiable provenance policy” maintaining a “prove it’s right” rather than “prove it’s wrong” rule.
The credit squeeze, financial turmoil and general uncertainty, have all impacted on the international secondary wine market. Recessionary fears and negative sentiment in the US, UK and Hong Kong have lead to downward price pressure and evaporation of buyer participants. Fine wine brokers and merchants are running lower inventories to protect their positions. Supply of top vintages, especially Bordeaux from the best vintages of the last decade, has loosened up. Price expectations have dropped. Some commentators believe that some estimates will fall to 50% of bull market values.
While the overall outlook of the international market appears negative, the future is not necessarily as bleak as some would think. The auction market continues to function as a conduit of fine wine. Clearance and participation rates are all dependant on the quality of stock. Christie’s had a sale in Los Angles in November with a 35% clearance rate, yet a few weeks later at Cirque Restaurant in New York, the clearance rates were a more respectable 60%. It was a well attended event, but unrealistic vendor expectations and reserves of Chateau Petrus and 2005 Bordeaux made it hard going in places. The overall sale result however was much better than expected.
It is predicted that the international auction market will be sluggish in 2009. However it is unlikely that there will be a free-fall in fine wine prices. Many of the top vintages of the 1980s and 1990s have become quite rare or difficult to find and remain great value compared to the release prices of recent vintages. The very top Bordeaux and Burgundies have traditionally performed well as an alternative investment. Obviously timing is everything. Despite the uncertainty, fine wine is ultimately a finite/limited production stock. Some buyers may find the current circumstances a great time to enter the market. The recent Hospices de Beaune auction held in November showed that despite the backdrop of a relatively difficult vintage and uncertain economic outlook, buyers still participated actively and positively with results “better than dared anticipated.”
On the Australian front we see our market evolving in a different way. The international wine auctions houses are increasingly focussed on the choicest and most highly prized vintages. The market at this level, with a niche clientele, is highly vulnerable to individual buyer dropout and price expectations. Grand Cru Bordeaux and Burgundy realisations skyrocketed during 2007 amid the euphoria of the financial markets and the release prices of the 2005 vintage. It’s not surprising that clearance rates and price realisations have dropped so significantly and so quickly. This is a market that is inextricably linked to the Footsie and the Dow Jones. However it should also be pointed out that prices are still way ahead of auction values in early 2007.
Supply of Bordeaux, Burgundy and Champagne is limited compared to the potential availability of stock in Europe, the US and Hong Kong. The Australian taxation system perversely creates an artificial barrier of trade. Under Hong Kong rules the secondary wine market for these type of wines would expand dramatically. The financial crisis hasn’t really dented price realisations in any significant way. With such limited availability and realistic lot offerings collectors are still paying good prices for top vintages. Langton’s expects this market to hold up over the coming months. Supply of imported wines has increased in recent months but the stellar vintages remain rare.
Fine Australian wine prices have followed a different trajectory at auction. While Penfolds Grange, Henschke Hill of Grace, and a number of cult-type wines have achieved international fame, prices are still within reach of collectors and buyers. While increasingly attracting international support the fine Australian wine auction market is still dominated by Australian and Asian buyers. The successful introduction of internet auctions and the availability of comprehensive market data have widened the secondary wine market’s demographic base. Our sales through October and November have exceeded expectations.
Langton’s Classification of Australian Wine Auction held on 3rd November was particularly successful, illustrating buyer confidence in blue chip Australian wine. After a lethargic sale in Melbourne on the 10th November, the market completely bounced back on the 24th November with outstanding price realisations and volume of sales. It also comprised a record number of bidders, perhaps illustrating the sheer quality of the wines on offer.
Many of the top Australian wines including Penfolds Grange and Henschke Hill of Grace are defying international market trends. Bidding volumes, price realisations and clearance rates are all healthy reflecting the structural strength and efficacy of the Australian secondary wine market, the wide appeal and affordability of Australian fine wine. Unlike the 'go for gold' policy of the major international wine auction houses, Langton’s has built up a completely different clientele and catalogue offering.
Langton’s predicts the fine Australian wine market to remain resilient. Managing Director Stewart Langton says, “Our most recent sales illustrate that the market is well balanced. The supply of fine Australian wine vintages is still relatively tight and overall demand is remarkably good. The internet is making a critical difference. While acknowledging negative sentiment in other markets, I feel that our broad and efficient reach, combined with fair seller and buyers expectations, have allowed our most recent auction sales to perform very well. Volume and level of bidding, especially for the very best marques, were impressive. However we are not immune from general sentiment. Clearance rates may take a bit of a battering as the market recalibrates. Prices for top vintages from recognised producers, however, should hold up.”
Andrew Caillard, MW
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Other Reports
Third Quarter Market Report 2008
2nd Quarter Market Report 2008
1st Quarter Market Report 2008
The Great Wine Estates of WA Index
Penfolds Grange Market Report
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