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China Coughs, Bordeaux Trembles?

There’s been a massive amount of chatter on wine blogs and in the Twittersphere this week about wine pricing, with particular relevance to Bordeaux. Although this is a subject that seems to be permanently bubbling away just beneath the surface, it has been brought into full view again by the publication of the latest Fine Wine 100 Index figures for December 2011, showing a large and persistent decline across recent months. As the vast majority of wines in the index are Bordeaux (95% are red Bordeaux), the implication for the Bordeaux market is clear. “Is the bubble bursting?“, some have asked.

It’s worth taking a quick peek at the Liv-Ex Fine Wine 100 Index as there a couple of obvious points to be borne in mind when viewing it – see this Liv-Ex blog post to look at the latest plot, and first note that the y-axis doesn’t kick off at zero, but at 175. And second, the x-axis is truncated, running back as far as January 2007. To point out these facts is not a criticism, it is only natural that a plot be ‘sharpened up’ in this manner before publication. But it is important that we be aware of these features, as the plot could be extended down to 100 (which was the starting point) and back for several years, both of which would put the current falls into a very different perspective.

The big news that has been circulating is the published drop of 14.85% for the value of the index compared to January 2011. It’s clear from the plot in the link above that there has been a drop (since July 2011). And with a 3.9% drop in December, and similar decline in the Liv-Ex Fine Wine 50 Index (which focuses purely on the Bordeaux first growths) there’s no sign of an immediate slow up in this slide. Indeed, the fall in this latter index was one of the largest (the fourth largest, to be precise) since it was created in 2000. As an aside, auction sales also slowed during 2011, coming down from a 75% climb in 2010 to a ‘mere’ 14% climb in 2011, as reported by Bloomberg.

Take a look back a year, though, and we can see that the index is still considerably above its January 2010 position, and continuing back in time year-by-year it is also still way above its value in January 2009, January 2008 and January 2007. And let us not forget how the index was fashioned back in January 2004; it kicked off with a value of 100, and so the value of the index in December 2011 – 286.33 – means the portfolio of wines within the index are still trading at 2.8 times their value seven years ago; investors with a long term plan are still very much in the winning.

So this doesn’t look like the bubble is bursting, although I concede (as a drinker, hope?) it might be a ‘slow burst’; it depends on how this decline pans out over the coming year (and through the Bordeaux 2011 release). But although these declines are of great importance to investors, there is a long, long way for the index to fall before prices hit the level at which this news is important to drinkers. Nevertheless, this is still a correction in Bordeaux prices with some – such as Lafite, as reported here in Decanter – falling in value by more than 40%. Of course the biggest climbers are always likely to be the biggest losers, and Lafite 2008 is a case in point. Released at a ‘low’ value which saw it sell at retail in the UK at a price around £1500 it was soon trading at prices more like £13000. Unusually for a wine (because fools like you or I might think the value was related to the quality of the wine, or influential point scores – not entirely true, I’m afraid) the value was greatly bolstered as recently as October 2010 by decoration of the bottle with a Chinese figure 8, again as reported in Decanter. If there is any wine destined for a tumble, surely it is wine that sees rising price fluctuations based on labelling?

Which brings us to China. Why the big fall in prices in recent months? China seems to be important (“d’oh“, you might say). I was particularly taken by this comment, by Sophie Kevany published in Wineyields, on why Bordeaux has had the confidence to put in place such massive price hikes in recent years:

Although in-depth market studies on Asian and Chinese markets are not apparently behind the 2010 price hikes, many top flight producers will happily tell you they’ve spent the last few summers fending potential Chinese buyers – for both their wines and their chateaux – from their doorsteps. And after that, as one producer said off the record, who needs research?

Of course if Chinese interest is on the wane, then prices are bound to correct. Despite rampant growth in China their economy is in less than perfect health, with fairly strong inflation as reported by the BBC, with a high of 6.5% in July 2011 (when the index started to slide – not that I am suggesting correlation here), and still running at 4.2% in November 2011 (the most recent available figure). The WineSociete China, who describe themselves as “China’s Leading Organization for Wine Education & Appreciation” (no, it is not a Pancho Campo operation as far as I am aware), report that these changes reflect reduced cash availability and lending by Chinese banks. More illustratively, they also report that the massive rise in wine prices has been mirrored in China by similar climbs in value of everything from property to fine jade pieces to dahongpao tea. There are, however, no reports – that I have found – describing falls in value of these assets.

Of course the super-rich who may well be buying up pricy Bordeaux might not be affected by such issues, but if they turn from Bordeaux to other regions such as Burgundy (as reported in Harpers) or if as has been reported as a possibility on Twitter the Chinese finally wake up and realise what over-inflated prices they are paying (I’m not sure about this one myself – but include it for your consideration) then further correction is inevitable. The 2010 campaign also has a role to play of course, with Justin Gibbs of Liv-Ex describing the pricing of Bordeaux 2010 upon release on BBC Radio 5 two days ago as “the nail in the coffin” of the value of the Bordeaux market. Prices that were bad for drinkers (I bought zilch – those more wealthy than I may have loaded up, but they are now watching the prices fall – ouch!) and bad for investors too (too high for surety of gains, and of course falling value since).

And so it seems we should look in two directions if trying to gauge how the Bordeaux market will far in the coming year. First, to China, to the health of her economy, to wine sales in Hong Kong, and the balance of Burgundy-interest against Bordeaux-interest. And second, to the Bordelais themselves, and the 2011 campaign. I think release prices will (wishful thinking, perhaps?) come down, reflecting the vintage and the market, but if the Chinese are still hammering on the doors of Bordeaux, with “rucksacks of cash” as described by Sophie Kevany, then there is no telling what could happen.

17 Responses to “China Coughs, Bordeaux Trembles?”

  1. And just published, more from Liv-Ex on the decline of Bordeaux versus the rise in Burgundy – although watch out for the y-axes again – that Burgundy climb isn’t as big as it first looks:


  2. Excellent and very thoughful piece of analysis, Chris. Thanks!

  3. Thanks Charles – that’s a really kind compliment.

  4. Chris

    A timely and well reasoned post. Than you.

    Your chareterization of a “slow burst” is likely an accurate one. Consumers of first growths Re starting to understand that they are not worth the price. Consumer tastes are also broadening – burgundy prices are bound to move.

    China’s wine market will continue to grow. Bordeux will for the near future remain the dominant share players. But both Italy and France are now growing faster than France – a sign of the evolution of the market.


  5. Michael, thanks for that feedback. China is indeed predicted to grow as a market for wine, by massive amounts. That will mean more imports, but more home-grown wines too I hope.

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  8. Sorry to sound so disrespectful when we are talking about the supposed creme de la creme of reds but really, who of the great unwashed should really care about them?
    There are thousands of wine producers with much more accessible product and prices out there in many countries without having to worry about what the classifieds are doing and these wines are available everywhere. I am sure many New World wines are just as good as french product at a fraction of the price and in some cases may even outperform and last time I looked we are still in a buyers market for the majority and there is still a glut and I havent even mentioned the financial travails of Europe.

    More fool those who have the readies to blindly splash out in the interests of “face” or snob/investment value.

    Chris, I know what you will be thinking and before you say it, this is not about sour grapes, it is simply financial reality.

  9. Alan, I don’t sense or accuse of sour grapes at all. I’m well aware of the backlash Bordeaux is experiencing, and have met many people with feelings similar to yours. The tide of anti-Bordeaux sentiment is higher than ever I think, influenced by (a) prices taking wines away from consumers who once bought them, (b) prices taking wines off restaurant lists, and together these also mean young wine drinkers don’t experience the wines; much top Bordeaux is now out of reach of many, when once there were only a few (Petrus, for instance) that could be so accused. So no, no sour grapes, and your knowledge that many regions offer something comparable to Bordeaux is one I am in almost full agreement with, and have discussed on this blog before (in post entitled “Trade Down or Trade Away” if I remember correctly).

    I say *almost* full agreement because although the rest of the wine world now competes very well with much of Bordeaux, you won’t find a Latour, Cheval Blanc, Las Cases or Ausone lookalike in Languedoc or the New World. You will find excellent red wines that are comparable in style to much lower level Bordeaux (and better quality too), but the inescapable and intrinsic “Bordeaux-ness” of the top wines cannot be replicated (so far I don’t think it has, anyway).

    Having said this, while top Bordeaux turns its back on many, there are a couple of things we should remember. Firstly, and sadly, if the wines sell, supported by the small number of people with the necssary disposaable income, then there is little likelihood of this situation changing. But if they realise they have been duped, that the profits aren’t there, or the wines aren’t so good, then who knows? If the 2011s are released very expensive, we may see an embarrassing stall of the Bordeaux market. Secondly, there are still many good wines made in Bordeaux at good price points; these deserve more attention, I accept, and I wish I had the time to do it. Thirdly, much of Bordeaux remains undiscovered; basic Languedoc reds and Côtes du Rhônes and simple but delicious Sangioveses abound, but why nothing like this from Bordeaux. Surely such wines must exist?!

    Agree with your point on those “fools” with “readies” but not so sure when the readies come from an immature market such as China where, although I am sure there are excellent commentators on wine and many people with a lot of knowledge, I suspect there are also many who don’t know enough about the market to tie together quality/vintage and an appropriate price (this is still true of many in the West as well – other wise all those Bordeaux primeur scams would never have worked). When the readies come from a slightly more naive market it makes me think they are being gouged to some extent, in which case I would feel more animosity towards the seller than the buyer.

  10. Hi Chris,
    with regards to your reply to Alans post. The statement that we can’t find a Ausone or Cheval Blanc in the new world is pretty much irrelevant to me and probably 75% of your readers. I’ll never be able to afford to afford the Grand Crus and the like so thier taste or quality is a moot point to me. Sad but true, well unless my Euro numbers come up that is.
    I agree there are still some excellent Bordeaux at decent prices still available; even on the right bank; but are they value for money ?.

  11. Whats so Screwy is that the fact that the wines on the index [1st growth anyways] are not true values of the wine per se, Lafite, Rothchild etc make 20000cases of wine, and release what 1%, 5% on first trenache to artificially set the price just like De Beers with diamonds. Release 75% of the wine and see what the real price is

    Also the fact its being marketed as a luxury item by luxury companies they know how to brand. hence why now we have more 2nd and starting recently 3rd wines, to keep the 1st wine artificially high

    I really dont want to buy a first growth, because I hate being manipulated.

    Just like Champagne, I love Champagne I buy grower champagne because its not marketed Moet, Vueve etc etc I want real wine by real people not corporations

    Oh and I buy wine to drink not invest

  12. Fair point Richard; I chose the most distinctive wines to illustrate my post, but tripped up in that these are also the most unaffordable.

    There are still wines that fit my description which are not (yet?) out of reach though. Enjoying a 1998 Grand Mayne this evening – can’t imagine a wine like this from anywhere but Bordeaux.

    Whether it is value for money or not is, I guess, something we each have to decide for ourselves.

  13. Weston, I believe that what you say is true, and that wine is being held back to stimulate demand (as if, especially in the case of Lafite, it needed stimulating…until now, at least). Although I don’t actually have evidence of this….other than the huge storage facilities being thrown up at some châteaux.

    Feeling manipulated, and being smooth-talked by Bordeaux apologists and publicists (naming no names…taking the high road, advice given to me on this blog before now) also puts me off buying. Happily I have an interest in the Loire equal to that of my interest in Bordeaux; top Chinon and Saumur is distinctive, ageworthy and full of joy. It has been a regular source of pleasure for me for many years now….long may that continue. Having said that I still love Bordeaux, and don’t mind paying money for good honest wine like Cantemerle, Sociando-Mallet, Grand Mayne, Brown, Raymond-Lafon, etc.

  14. Chris, you are right, value for money is in the eyes of each drinker/investor. First growths and top right bankers have been for ages well out of reach for most so in a perverse way I hope that their market does collapse as it might bring their product within reach but I am not holding my breath. Besides the corporate owners have enough fingers in various pies to more than look after their own. I can still afford Sociando and the odd Clos Du Marquis to go with my Coleraines and Stonyridge Larose so life in the wine basement is not so bad really.

  15. Old timers like me (who started in Bordeaux in 1982…) will remember well the previous bubbles – Japan, Russia et al..the Chinese will drift away soon enough and the Bordelais will latch onto the next crowd of suckers soon enough. Stick to good Bordeaux from middling / good growers and enjoy life… without ruining onself. Smart money doesnt follow the crowd. By the way, why cant one now find good red (or indeed white) Graves in Britain any more ?

  16. Good advice Sussexwino, and there does seem to have been a softening of interest in China and a perhaps related softening in prices in the latter part of 2011 and in the New Year HK sales. Having said that, prices seem to be firming up again, so it doesn’t look like a collapse of the market. 2011 pricing is going to be interesting!

  17. As many have said above and elsewhere, we are “out of the running” on First Growths and even odd bottles appearing on eBay fetch “silly” money – for off vintages mainly and without any proof of provenance/cellaring, so goodbye to all that. A shame and the days of Lynch Bages en primeur at £3.50 a bottle (1981 vintage) are well gone!