Of wine and tulips [China]

What has hints of red fruits, leather, tobacco, and tulips? Why, the wine investment market!

Elin McCoy reports from Hong Kong that a fund there will lend up to $641,000 (USD) for investing in wine–providing the investments are in the bank’s select list of 50 top names. She also reports that a new fund at Pacific Asset Management seeks to invest over $150 million in wine (it’s raising $30 million initially). There’s talk there of other funds diversifying into wine; some European wine investment funds have opened offices.

More money, chasing wines and returns while dodging counterfeits, smacks of tulip mania and the greater fool theory. When will some financial wizard develop a way to short wine?

One aspect of the wine market that defies tulip mania is the fact that even as more money appears to be rolling in, top Bordeaux prices are falling: the Liv-Ex Fine Wine 50 Index that tracks the last ten vintages of physical (not en primeur) Bordeaux first growths is down 18% in the past quarter. Interest in red Burgundy is up, as is interest in non-first growth Bordeaux. Breadth of wines is probably healthier than all the money funneling into a small group of wines and a broader index of wines is up 13% over the past year, but with declines in the past quarter. And a recent Hong Kong sale saw only 84% of lots sold. So maybe there is some sanity.

Hopefully, if it crashes, whoever is left holding the proverbial bag will have a corkscrew. And real, not counterfeit, wines.

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8 Responses to “Of wine and tulips [China]”

  1. Hi Tyler

    We’ve run a couple of features on the Wing Lung Bank offering leveraged wine loans previously, if anyone wants further details:
    http://wineyields.com/www/content/default.aspx?cid=714 and http://wineyields.com/www/content/default.aspx?cid=696&fid=686

    The reason the Liv-Ex has been falling despite the formation of these funds is that the funds have yet to put their money to work. They have seen the market go into correction since the summer and – remembering the lessons of 2008 – are sitting on the sidelines waiting to snap up some bargains.

    The funds who are led by experienced managers will probably do very well.

    The only thing that really makes me nervous about the market is hot money from people who really don’t understand the market at all. The recent correction is probably helpful in giving some of them pause for thought.

    For those of us who buy to drink the stuff, there is probably a very good buying opportunity coming into view. It is difficult to see the current price falls being sustained for long – given what the Bordelais managed to clear for their 2009 and 2010 en primeur campaigns.

  2. You know what really makes me upset, is that I bought wines at auction and the 21% premium I had to pay. Tho for me it was still cheaper then buying them in Canada, well if you could find it, since selling wine from person to person is Illegal

  3. The Chinese will be taking those dumb foreigners for everything they can. Those enterprising people might be under Commie Rule, but they will cheat you, fake you, and impersonate the REAL THING. I have only one thing to say about Chinese Wines….If you love the lead in the toys from China, then you will love their wines!

  4. Ron –

    The stereotyping in your comment leaves a really bad taste — do you have any substance for your claims? As to your final comment, this post wasn’t about wines marketed as Chinese wines; rather it is about how Chinese demand is driving the market for some of the most expensive wines in the world.

  5. Dr. V,
    Perhaps I mis-understood your article. Isn’t it about funding for China’s Wine Industry. If so, then I would concur that there will be a bust. All of my business associates who have dealt with the Chinese find them to be dis-honest. Look at the many fiascos from the Chinese (i.e. toys, food products, faux products, copyright infirngements) Many of the recent webpages shut down by our Government were in China selling their faux products to the world. I predict there will be huge scandals in the Chinese Wine Industry. Although my comment on lead is an unsubstantiated ineundo, I predict there will be tainted wines, faux wines, and a huge negative impact to the California Wine Industry with the dumping of California impersonations in other parts of the world.

  6. Ron: I think you’re making at least one unwarranted assumption, which is that the Chinese are making counterfeit wine. As best I can tell, this has not been proven. In any event, it seems far more likely that the wine is coming from countries that already make wine. Maybe countries that have tremendous wine surpluses? Is it so hard to imagine the European Wine Lake being drained to meet the needs of Chinese counterfeiters? Which would mean that the Europeans and maybe even some of our cash-strapped American producers are colluding in this practice? (at deniable arms-length of course: “Whocouldanode? We just sold them the bulk wine, we didn’t tell them what to do with it”). I’m just speculating here, of course.

  7. Dave,

    The information on the faux wine is from wine experts who have traveled to China and experienced it first-hand. I trust these business associates more than the Chinese.You are welcome NOT to believe what I have been told are the facts from reliable sources. My sources include a distinguished gentleman from the wine media and a business associate. Let’s look at other facts that the news media have presented such as the recently closing of over 150 websites (mostly in China) selling designer imitation), huge amount of faux designer items being imported into the USA such as sold at many businesses in the Westpark Corridor in Houston (police shut them down regularly), and the recent IPHONE copy scandal including the Sales Outlet in China that was a dead ringer for the Sales Outlets in the USA. There are lots of imitations in China than other parts of the world. If you want more proof, buy 20 bottles of the same French wine in China and see how many are faux!

  8. […] always appear. That seems to be the case with wine investing being spurred on from the far east. Dr. Vino gives us a quick and to the point summary of what is going on and hints at what we may expect is […]


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