Last year, despite economic worries and turbulent stock markets, fine wine prices kept rising throughout the year. We have spoken at length about the resilience of fine wine against an uncertain global economy; last year’s healthy performance is testament to that. Having looked thoroughly at Q4 and last year as a whole, we are seeing many areas of potential for investors to sink their teeth into this year (the specifics of which we look at below). There is one particularly poignant word we’d use when looking at 2023 for fine wine — and it’s opportunity.
While overall the year saw steady growth (including a 6.9% increase for the Liv-ex 100 index), interesting things happened in Q4. December saw the Liv-ex Fine Wine 100 index drop by 0.2%, settling at 419.64, and marked the third consecutive month of decline following a 0.4% drop in November 2022. It meant that by the end of the quarter, the index was down by 1.1%. This met most of our predictions of how the year would end after such a strong run, for anxiety around the rising cost of living and major economies experiencing economic downturns were bound to manifest in the fine wine market eventually, if only temporarily.
Within in a bigger picture this is simply a natural dip, for the major indices factored in, fine wine ended the year with an impressive return of 20.54%. This is way ahead of gold, which closed the year with a considerably lower return of 1.55%, and traditional financial assets, where there were significant losses noticed in several global stocks and bond markets. With peaking inflation, energy prices skyrocketing and economic growth on the decline, even the traditional, ‘safe’ 60-40 portfolios have not been exempt from volatility.
Fine wine’s investible muscle is truly flexed when you consider how minimal the impact of such external factors is on longer term performance; the Liv-ex 1000 was up 13.1% over the course of 2022 and by 45% in the last five months.
Wine Indices 2022 Performance
After seeing a period of recovery in October and November, there was an abrupt decrease towards the year’s close for the traditional financial markets, making 2022 a particularly trying year for many sectors and one of the most volatile since the global economic turmoil of 2008.
The S&P 500 saw its biggest drop since 2008 in 2022, declining 18.11%. Meanwhile, the FTSE 100 had a small gain of 4.70%, which was less than half of its 2019 performance at 12.45%.
During the fourth quarter of 2022, bond markets experienced an unexpected recovery due to tamed inflation rates in the US. This change in figures raised hopes that the Federal Reserve would not increase interest rates for 2023 and consequently bolster economic growth.
Unfortunately, December hindered the recovery of markets due to inadequate growth, low inflation, and further interest rate hikes; the Federal Reserve and the Bank of England both raised their rates by 0.50% in December.
Financial outlook for 2023
This year it is fair to speculate that equity markets and other riskier asset classes will face a volatile environment. While some positive developments can be expected, caution should still be taken.
The British pound dropped almost 10% from its YTD high against the US dollar and was trading at around $1.21 and €1.145 after the Bank’s announcement. The Office for National Statistics released figures showing a 10.7% inflation rate in the year ending November 2022, slightly lower from October’s 11.1%. This is resulting in an ongoing cost-of-living crisis and has resulted in an increase in prices. The Bank of England is in an unprecedented situation due to escalating fuel costs in response to the Russian incursion into Ukraine and the spiralling inflationary effects of the post-Covid surge in demand.
According to ING, the Bank of England could reduce interest rates to 3.50% in late 2023 and to 3.00% by early 2024. Additionally, it is predicted that the BoE will continue their rate-cutting cycle, bringing the bank rate down to 2.25% at the end of 2024.
The world economy is currently in a healthier state and the lowering inflation rate is an encouraging sign. There are, however, concerns. The consensus is that due to the damage already done by the high inflation rates, the US is bound to enter a recession in 2023. Though there have been no imminent signs of danger, economic and financial principles dictate that after such an aggressive “money printing” period the market is bound to rebalance itself. Analysts also believe that the S&P 500 index might reach a low, similar to the one seen in 2022, during the early part of 2023.
Europe on the other hand might just dodge a recession, due to the more conservative policies during Covid-19 pandemic that spurred the high interest rates to begin with.
As demand starts to taper off for goods and services due to fund reserves gathered during Covid drying up, and rising interest rates that have been implemented directly in response to the increasing interest rate in 2022, we should see an inflationary pressure weakening over the course of 2023.
Wine regional performances
Burgundy takes the title of the darling of fine wine after the past 12-months. After a shift in focus from Bordeaux to other regions in 2020 and 2021, 2022’s rankings are largely dominated by Burgundy wines.
The Liv-ex Power 100 (an index based on several weighted criteria including number of wines traded, price performance, average trade price, value, and volume share) grew from 24 Burgundy wines in 2017 to 39 in 2022, largely at the expense of Bordeaux.
The Burgundy market has been riding high on a surge of confidence and availability of capital; this is reflected in the tiny 2021 release which has been backed by “ready money” and has been seen as a great success of a campaign, despite the minimal quantities.
Another notable factor in the rise of Burgundy is the ever-increasing scarcity. The region’s performance in 2022 was aided by the knowledge of a small upcoming release of the 2021s. The harvests were significantly reduced in 2021 due to frost and high summer temperatures, decreasing yields by 50-70% compared to the yearly average. This only helped spur on demand – and price, up by an average of 25% – for the recent En Primeur campaign further.
Towards the end of last year, prices began to slowly reduce. Yet despite the Liv-ex Burgundy 150 index seeing a slight decrease from November to December (-1.5%), it remained the best performing region for 2022. And with Burgundy 150 prices showing 0.4% growth in January 2023, there is a positive shift from previous trends.
At IG Wines, Burgundy is something we remain confident in. The continued impact of climate change, inevitable generational changes at key Domaines and the ever-rising demand for big ticket, rare wines from estates such as DRC, Leroy and d’Auvenay are expected to create extra strain on supply. There is much for savvy investors to capitalise on.
Bordeaux’s investment performance is rarely as flashy as regions such as Burgundy and Champagne, yet it remains a core part of any portfolio for good reason. Bordeaux entered Q4 having dominated 49.8% of total wine trade by the end of Q3; a record high for the region, in part attributed to the interest and attention caused by the 2022 Saint-Emilion classification.
Prior to the announcement, it was much speculated that Chateau Pavie would be joined by several new estates in the Classe A category. After their promotion in 2012, both Chateau Pavie and Angelus saw immediate price increases in the market as well as significant price increases in their 2012 releases, with Angelus releasing 30% above their 2011 price and Pavie at a staggering 58% increase. As it was, only one estate was promoted in the 2022 reclassification. Chateau Figeac saw a flurry of activity following the announcement as well as record-breaking prices for some of its wines on the secondary market; the 2013 vintage trading for £1,448 per 12x75cl, an impressive 173% increase from release.
Aside from St-Emilion, Pomerol was particularly popular too in Q4, the two together making up nearly 50% of all Bordeaux trade. Here the ‘18s and ‘19s were especially sought-after.
The First Growths as ever held their own in terms of value traded and brand perception last quarter. Within the Liv-ex Power 100 of 2022, Lafite was the second most-traded brand by value and one of the top 10 by volume, while Mouton Rothschild sat impressively at 13th place on the list. “The Best-Seller” effect comes to mind here, which implies that once a good or service reaches a certain level in terms of either sales or value, it will remain there due to the created perceived value. The stability these big names offer is in part why Bordeaux is still a staple part of any balanced fine wine portfolio; these should then be balanced with Chateaux such as Figeac, Lynch Bages (labelled “a Bordeaux property on the move” by Liv-ex following a surge of secondary market demand so far in 2023), Canon and La Conseillante, all of whom show promise of a shining future ahead.
Another thing to take note of with Bordeaux is the upcoming 2022 En Primeur campaign. Early whispers are of a total knockout vintage, one of best in recent years with some critics drawing comparisons to the seminal 1982. Our full report will be published following on from our springtime visit to the region.
In short, the key to Bordeaux is balance, looking at the longer-term gains as well as the stability the region can offer. But it isn’t all ‘safe’ and steady – against gold, which conventionally is considered a safe haven for value, something like Petrus shows just how compelling Bordeaux can be.
Bordeaux is one of the few places where quality wines with a high concentration of brand power, prestige, availability, longevity, and good value can be found. It speaks volumes about the region’s sustainability and value.
Champagne certainly sparkled last year. The Champagne 50 Liv-ex index recorded impressive growth of 12.5% in 2022 and led the way for other Champagne indices. Particularly noteworthy results came from Bollinger La Grande Annee ’12 with +16.1% growth, Dom Perignon ’10 with +15.1%, and Krug Vintage Brut ’03 with an incredible +23.1%.
An interesting development for potential Champagne investors was the 5% dip in prices during December 2022 and January 2023. This is an expected post-festive period dip, and one we see as a buying opportunity. Especially when looking ahead, for one must consider that the permitted harvest yield in Champagne has been below the average permitted supply between the 2007 and 2022 vintages. This correlates to the wine releases from the 2013 vintage onwards until present. The impact of this is forward looking – we are only now seeing the release of the prestige 2013 Champagnes in 2023, with lower stock levels yet increasing demand.
More details can be seen in our recent market report Champagne, which you can read in full here.
Italian wines have been gaining exposure and recognition like never before in recent times. International attention and talented winemakers are at the forefront of this ‘golden hour’ for Italian estates. The Super Tuscans are enormously popular and the demand is only growing, once again pushing prices further up. Generally, these wines’ are quick to sell out on allocation, giving limited access to acquisition. Examples to support this are: Tignanello ‘18 with a growth of 13.79% in 2022; Masseto ’19 with a +15.23% in 2022 and, Sassicaia ‘18 with a +12.39%.
The Italian fine wine market is more broadly in good standing too, backed by the wide variety of wines it produces and deeply passionate global buyers. This is demonstrated by the Liv-ex Italy 100 index increasing 0.74% on average every month for the past year and 0.85% overall since January 2020.
Contrary to their explosive growth in popularity over the past decade, Italian wines remain an affordable option in comparison to many cult French ones. In fact, the price gap between the two has only grown wider over time. Furthermore, in recent years we’ve been blessed with some of the best vintages ever from Piedmont and Tuscany. This is indeed something to be celebrated and has been reflected in the prices of key Barolo, Barbaresco, Brunello, Chianti producers and Super Tuscan estates.
Trade in investment wines from the Rhone was the least impacted by the bias towards Burgundy and Champagne last quarter. Quality scores from reputed critics are dependably excellent, while steady production supports market availability and value retention, giving Rhone its distinctive stability to produce value and stable returns.
In the last few years, Rhone wines have become a popular choice among wine investors due to their excellent price to value ratio. From 30th November 2019-2022, the Liv-ex Rhone index saw a rise of 27.4%. The top performers experienced growth of up to 50% last year.
As other regions’ prices have risen, Rhone now offers the lowest entry point to the fine wine market yet with average growth of 5.6% in 2022. These points considered, it is fair to assess the Rhone as a stable index with unrealised value potential.
During 2022 the US Dollar/GBP currency pair experienced quite a tumultuous run as the GBP almost reached parity with the US Dollar (1 pound =1.0697 USD on 26 Sep 2022). During the fourth quarter of 2022 however, the Pound was on a recovery trajectory and slowly strengthening. Due to this strengthening against the US Dollar, California’s trade on Liv-Ex decreased. Despite the quarter downturn, overall, the growth of the California’s Liv-ex 50 index stood at around 5.2% for the year and since the start of 2023, things have picked up for the region. In the second week of February, California accounted for 20% of total trade by value according to Liv-ex.
What stands out with the US is the importance of the brand. Last year, wines from individual producers saw a greater increase in performance. Screaming Eagle came out on top as the most successful US wine, with Harlan Estate not far behind.
For the US, the consensus is that the market is in an overall good place. The booming domestic market for key names such as Screaming Eagle mean whatever allocations there are, get hoovered up annually. This local demand makes acquisition in Europe more difficult, and as a result will drive the price up further.
Despite the difficult economic conditions in 2022, interest in fine wine has stayed strong and many investors are looking to secure tangible assets such as these for their portfolios. Although there are numerous concerns worldwide regarding the future, wine still shines as a bastion of stability and growth, offering continued opportunities for potential investors if they know where to look and most crucially, when.