All posts filed under: Commentary

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 …

The upward creep: will price points replace Parker points?

Re-posted from the Liv-ex blog! See also this excellent overview of en-Primeur price increases this year so far.  Followers of this year’s En Primeur campaign will have noticed that release prices are creeping up again. What’s behind the upward creep? In a previous post we saw that release prices have been stuck at elevated levels since 2011: after the heady bull-market for the 2009 and 2010 vintages, prices did not revert to pre-boom levels but got stuck somewhere in between. You could say that the En Primeur system lost its innocence during the bubble years. Producers still remember a ballooning spread between En Primeur and London prices when the secondary market became red-hot. The fear of regret is a powerful motivator. No producer wants to run the risk of leaving money on the table again, especially when a vintage feels right. The Wine Society has described the vintage in 2015 as “unquestionably the finest for the past five years.” Producers are aiming higher in case the vintage booms. Apart from release price stickiness, there’s another reason …

Wine investing and trading V: Carruades de Lafite 2010

In the final blogpost of this series, I will look to apply the tools developed over this series on one example: Carruades de Lafite 2010. This is a wine that is regularly traded on platforms due to its regular supply, healthy market sentiment and consistent expected margins. Here, we use trading data available from the Liv-Ex trading platform. The above graph shows the WQ Inventory Value for Carruades de Lafite between June 2015 and February 2016. It is clear that the supply has been fairly regular. There was a build-up in inventory between June 2015 and August 2015 due to low trading activity which we shall see later. The WQ Spread is a good indicator for both market sentiment and bid:offer ratios. A steady (and non-turbulent) trend in the spread as shown above shows that market sentiment for Carruades de Lafite has been very healthy over the last eight months. There is a small bump in December 2016 which is attributed to a possible trading hiccup as the market adjusts itself to slower trading activity in …

Wine investing and trading IV: Market sentiment and activity

In the penultimate blogpost of this series on wine investing and trading, I shall discuss two metrics which we have developed here at WineQuant to characterise market sentiment. The first metric is called the WQ Spread. It takes into account the monthly highs, lows and average trading values for a particular wine. It is designed to summarize the state of market sentiment. Market sentiment is healthy when the WQ Spread is stable over a sustained period of time. The way we see it, market stability means solid trading activity. On the other hand, volatility in the WQ Spread signifies negative sentiment. In this case, we would expect little or only sporadic activity. Let’s look at examples of these two scenarios, using Lynch-Bages 2010 and Haut-Brion 2010 as our pin-ups. An example of the WQ spread over time is shown below. This is Lynch-Bages 2010 between October 2012 and January 2016. Looking at the development of the WQ Spread over time, we see that market sentiment for Lynch-Bages 2010 has been positive and stable except for a blip in June …

Wine investing and trading III: Supply

There are several factors which determine trading activity within the fine-wine market. The main factors include inventory level and market sentiment. The inventory level is a measure of the number of bottles of a particular fine wine available on the market while the market sentiment is a measure of how receptive the wine is at the demand side. At a more fundamental level, supply and demand governs the mechanics of the market. However, real supply and real demand are unobservables and this in itself raises an empirical challenge. To this end, WineQuant have developed a quantity called the WQ Inventory Value as an estimate for supply using trading data available from Liv-Ex. This WQ Inventory value is calculated based on two variables: the number of bottles of a particular wine available in one particular number and its monthly averaged traded price. In this blogpost, I shall present the WQ Inventory Value for two wines, Haut-Brion 2010 and Lynch-Bages 2010 between October 2012 and January 2016. There are two main reasons as to why these wines were chosen. Firstly, Haut-Brian …

Wine investing and trading II: Provenance

The next few blogpost in this series are adapted from reports available on the WineQuant website which you can find here and here. In this post, I will discuss why I have chosen to use trading data available from Liv-Ex. Liv-Ex is the foremost wine-exchange platform on the UK wine scene. Traders with accounts there are able to put their offerings for others to bid. Trading activity is high and the platform gives a nice snapshot into the fine-wine market scene in the UK. There is a lot of trading data available on the platform such as the number of bottles available on the market, monthly highs-and-lows, auction bids and so forth. Non-trade users can use a subsidiary service from Liv-Ex called Cellar-Watch which gives access to some of the trading data available. One of the main strengths of the Liv-Ex platform is its provenance-verification certificate called Standard in Bond (SIB). On the regulations section of Liv-Ex’s website, wines that are given this status must obey the following conditions: the original wooden packaging must be in good condition, …

Wine investing and trading I: the Market

Investing and trading in wine can be a joyful or painful experience. Joyful if you have made a super 300% return upon liquidating a wine which you have held for 5 years or you are making healthy margins at a high turnover rate. Painful if you are shifting some wines very slowly at slim margins or you only just break even upon liquidating some wine which you have held for a while. By the time you factor in storage costs, inflation, logistics, FTSE-index matching, etc.; you will inevitably ask why you put yourself through all these in the first place. When the going gets tough, some traders and investors console themselves by telling themselves that they put themselves through all the pain for the love of the wine – which is acceptable, I suppose. Not in the Epicurean sense, of course, but I digress… In the next series of blogposts, I will introduce a set of trading tools developed by WineQuant (WQ) which can be used to understand the mechanics behind wine trading and investment. Supply and …