Commentary, Essay, Trading, Uncategorized
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On Brexit and the international fine wine trade

Alan Livsey, an Oxonian on the FT’s Lex team has aptly started his wine-commentary piece on the FT as follows:

“Fine wine does not take well to shaking – sloshing the sediments around the bottle only muddles the product inside”.

There has been plenty of sloshing going around, as Livsey has noted in the same piece. There are tales of booms and busts, sticky prices and the likes. This is especially true when it comes to Bordeaux en primeur – a system that is very near the point of breaking, only to be saved from its brink of doom by a very good vintage. Even so, there are plenty of criticisms on early bottling, unfinished products and so on, which makes you wonder when will the barrage ever stop. But with cheap and abundant shell suppliers, I doubt the barrage will ever end.

I am not here to discuss the limitations of the Bordeaux fine-wine market and its en primeur system. I am here to talk about Brexit and its implications on the UK fine-wine scene and the dynamics of the international fine-wine trade.

On the 24th June, most merchants recorded some of the largest trading activity they have ever seen. James Miles, at Liv-Ex, recorded a day’s worth of trading before 9am on that morning. We can understand what has happened – with an impending fall in the value in the Pound Sterling with respect to the USD and euros, wine buyers based in the UK were looking to lock their Pound Sterling in fine-wine stocked before the day of the referendum. Furthermore, fine wine doesn’t shift as quickly and it would take some few days for merchants to replenish their stock at updated prices. Those opportunistic buyers on that day is bound to make some healthy margins especially if they were to sell the wines at the updated price in Pound Sterling especially to overseas buyers later on. Add overseas buyers on the day into the mix, and it is no wonder most merchants have to spend the following week busily replenishing their inventories.

As the dust settles over the results of the UK referendum on the EU in the coming weeks and months ahead, the UK fine-wine scene which trades within the UK and the EU will begin to feel the pinch due to the economic uncertainty going ahead, in particular whether the UK will remain within the EU single market. If Team Theresa May can negotiate some deal to allow UK to continue trading freely inside this single market, we can expect business as usual. Given that wine-trading is another form of capital goods trading, we can also expect an improvement in trading activity due to the weaker pound and the maturity of the UK as an international fine-wine hub. However, if there is no deal to keep UK within the EU single market, wine-trading activity in the UK will experience a serious contraction as export sales to the EU will inevitably fall. It remains to be seen whether other export markets such as Hong Kong, the United States and Singapore can pick up the slack. The other ASEAN countries can form a potential market to fill the gap but until the UK formally exits the EU, it is illegal as things stand for the UK to negotiate trade treaties on her own.

The economic uncertainty going ahead will definitely hurt the UK fine-wine scene. As I write, I can’t help but to notice the increase in wine traders based in France and the rest of the continent engaging with consumers from all around the world through social media. Here, some of these traders smell blood and with international logistics consolidating and as the fine-wine supply chain is streamlined, it comes as no surprise that these traders want to build direct and personal relationships with their overseas distributors and consumers from the world over. The fine-wine scene is ironically accessible yet inaccessible due to how fine wines are objectified as a positional good. The number of posts on my Facebook feed of my peers based in the ASEAN and Far East nations imbibing the premium wines is increasing and not decreasing. There is empirically unobservable stagnation in wages and if anything, micro-investments into the local economy are gradually increasing due to poor returns on investments in advanced and some of the emerging economies.

Here, in this short essay, the lens was focused on the fine-wine market. As we shift and change in zoom, it is possible to note that there will be some paradigm shift in the manner in which capital goods exchange hands and international trade is conducted moving forward in the years ahead. The economic uncertainty going ahead puts Asian fine-wine hubs like Hong Kong and Singapore at an advantage. Tokyo can also be a serious wine hub once the Trans-Pacific Partnership is ratified – so can San Francisco, Vancouver, Seattle and many other places in North America. The Chilean wine scene can also shift her focus from Europe to the Asia-Pacific. The rules of engagement have changed and only time will tell…

RL@WQ

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