High spirits: Asian investors toast fine wine’s terrific returns

With current economic conditions making the hunt for alpha challenging, Asian investors are increasingly enriching their portfolios with a very liquid addition.

Wine is a liquid asset, in more ways than one. With demand primarily driven by investment over consumption, allocation to this luxury asset class is on the rise – in particular, in Asia Pacific. 

The emergence of innovative apps and developing technologies such as blockchain-enabled tokenisation, are supporting both the expansion and democratisation of this alternative investment opportunity.

The price of fine wine has increased by 43.5% in the past five years, according to a January 2023 report published by the London International Vintners Exchange (Liv-ex), which tracks broad performance through the Fine Wine 1000 Index. The sector’s renewed allure is therefore unsurprising. But often, the desire to invest in wine goes beyond returns, as Kazuaki Takabatake (Kaz), commercial director for APAC at Cult Wines explained.

“You get the guys that look at wine investment purely as a commodity or physical asset play. And then you have those who are really into wine and buy a lot under the assumption they're going to drink it one day, and suddenly realise they’ve got more than they can consume in their lifetime. For them, it’s a sort of passion asset investment.”

Cult Wines is seeing increased interest from Takabatake’s base in Singapore; as well as from Japan, where it is looking to set up its next office; and, of course, mainland China.

“China is just the tip of the iceberg at the moment,” he enthused.

According to data from the Hong Kong Trade Statistics, Census and Statistics Department, between January and May 2022, 87.6% of Hong Kong’s total wine exports by value, ended up elsewhere in Asia. China in particular, benefits from the 2006 introduction of the Mainland and Hong Kong Closer Economic Partnership Agreement (CEPA), which stipulates that all products of Hong Kong origin – or from other regions with preferential trade agreements – remain tariff-free. 

Although the pandemic’s impact across supply chains has proven detrimental to Hong Kong’s recent wine industry revenue, Statista predicts that the market will soon surpass pre-pandemic levels, with a total turnover of $724.74 million estimated for 2023. 

Takabatake explained that Asian investors continue to eye up Burgundy and Champagne, but due to supply constraints, the performance of the wines produced in these central and north-easterly French regions has experienced high levels of volatility.  In contrast, the more southerly chateau-focussed region of Bordeaux, has remained somewhat steadier. 

When constructing a balanced portfolio, Cult Wines will generally look to include 30-35% Burgundy derived wines, 30% Bordeaux, around 15% from Champagne and 10-15% Italian wines. The rest will comprise wines from Chile, Argentina, Spain and sometimes, Australia.

Robust returns

Cult Wines aims to earn clients a minimum of 8% return on investment (ROI) per annum, before fees. According to the firm’s 2022 report, it achieved an annual return of 12.77% last year. 

“If you look at our compound annual growth rate since 2009, it's been just above 9%,” Takabatake told FinanceAsia.

While fine wine prices saw a slight decline in December 2022, all Liv-ex indices rose overall, with the Liv-ex 1000 finishing up (+13.1%) at the end of the year. By contrast, in 2022, both the S&P 500 and Nasdaq fell (-18.11% and -32.54% respectively).

Results from a recent survey of the exchange’s 600 merchant members – who represent the largest pool of fine wine traders in the world – reveal that 43% are optimistic about the performance of fine wine over the year ahead; with 34% neutral; 21% pessimistic; and the remaining 2% comprising those who did not respond.

Source: www.liv-ex.com (Liv-ex Monthly Market Report, January 2023)

Oi-Yee Choo, CEO of Singaporean digital securities platform, ADDX, shared that the value of fine wine as an investment class had appreciated by 137% over the past decade. She pointed to wine’s lack of correlation with the stock market as making the asset class appealing for portfolio diversification.

Indeed, S&P data reveals that at the height of the Global Financial Crisis (GFC), fine wines took a meagre dip (-0.6%), while the stock market plunged (-38.5%). 

Findings by the Knight Frank Luxury Investment Index (KFLII) also show wine as a fierce competitor in the world of luxury assets, performing better (+16%) year-on-year (YoY) compared to art (+13%) and rare whisky (+9%).

Democratising wine

Cult Wines currently has £285 million ($345 million) in assets under management (AUM) and a minimum investment amount of £25,000 means that most of its clients are ultra-high net worth individuals (UHNWIs), high net worth individuals (HNWIs), or family offices. 

But in a bid to encourage retail participation, new investment platforms and apps have been developed to eliminate this high entry threshold.

“For most of the people coming through us, this is their first ever wine investment. We try to welcome them into the community by removing the perceived elitism,” said Anthony Zhang, co-founder and CEO at wine investment platform, Vinovest.

The California-headquartered firm offers exposure to wine from as little as $1,000 and leverages a proprietary algorithm that Zhang developed to identify investment opportunities.

“Our model aims to beat the Liv-ex, which has returned around 11% a year, and we've done that consistently for the past three years,” Zhang told FA.

Around 25-30% of Vinovest’s users are Asia-based, Zhang explained. “We've definitely seen strong tailwinds especially coming out of Asia – Hong Kong, Singapore, Japan, South Korea.”

In a similar vein, ADDX recently announced the tokenisation of a S$696,000 ($512,000) fine wine portfolio by trading company, Provenance Treasures, which enables accredited investors on the ADDX platform to invest in wine from as little as S$830.

Asia asserts itself

Since 2008, liquor with alcohol content under 30% has enjoyed duty-free status in Hong Kong. As a result, the market has asserted itself as the world’s largest fine wine auction centre and a key port for international wine trade, as detailed in research by the Hong Kong Trade Development Council (HKTDC).

“Hong Kong is the number one wine market in Asia,” said John Kapon, chair of fine and rare wine auction house, Acker (formerly Acker Merrall & Condit). 

“[It] is a superlative hub for buyers across Asia, as well as European and American investors of fine wine,” he told FA.

Kapon explained that while Japan was the first to embrace fine wine in Asia and remains an important market, its buying tendencies are slightly more discreet compared to the exuberance and enthusiasm of Hong Kong and China. 

Meanwhile, Singapore remains an emerging market for wine trade, and one that has significant potential.

“Becoming a regional hub for wine trade has not been a priority of the Singapore government until fairly recently,” echoed Hong Kong-based master of wine (MW), Sarah Heller, who noted that so far, Singapore’s import duties have reflected this. 

“But of late they have been more active with wine fairs like Vinexpo, which is launching there this year.”

Breaking new ground

While experts like Takabatake and Kapon expect Burgundy to continue to dominate interest from Asian investors over the next five years, over the longer term, climate change, among other factors, is expanding the geographic scope of wine production. 

With optimal conditions for wine growing considered to be between 30 and 50 degrees latitude on either side of the equator, the industry is welcoming new entrants and viticulture techniques. Major players, including Château Lafite Rothschild and Moët Hennessy Louis Vuitton (LVMH), have established operational wineries in Shandong and Yunnan. 

“A big portion of this optimal wine-growing area can be found in Asia. As such, growers in markets like China are exploring innovative growing techniques. For example, they’re burying grapes under hay in the winter, so that they don’t freeze,” explained Simon Tam, a wine industry veteran who founded his own auction firm and served as head of Wine for Asia at Christie’s for a decade.

While Asia’s tropics might bring their own challenges to grape growing, some see opportunity. Hatten Wines is a Bali-based wine producer that uses its year-round temperate climate to cultivate “evergreen vines” that deliver a constant harvest. The result: non-vintage wines that reflect the island’s tropical terroir.

Heller pointed to China and Japan as the two major Asian players producing fine and collectible wines appropriate for export, with Ningxia and Yamanashi respectively having become increasingly recognisable names. 

“I have been very impressed by Bordeaux blends from various Chinese regions where moderating factors like high altitude help create refined, elegant wine styles: LVMH’s Ao Yun from the foothills of the Himalayas in Yunnan is pretty widely known, but another lesser-known producer I like is Rongzi, from Shanxi.” 

At Decanter’s 2022 World Wine Awards (DWWA), Chinese producers secured 17 gold medals, with the top wine-producing regions spanning diverse growing conditions – from the sun-drenched expanses of Ningxia and Xinjiang; to Liaoning in the north-east; coastal Shandong; and the semi-inland vineyards of Hebei. Three golds were awarded to wines produced from 100% Marselan grape, which the publication has deemed the market’s future “signature”. 

“I also have my eye on Marselan,” Heller told FA, explaining that the variety emerged from France in the 1950s and since, has grown in popularity in several Chinese wine regions for its ability to withstand heat while producing flavour richness and spice, as well as offering definition and poise. 

“The fact that the wine, Long Dai, from the iconic Domaines Barons de Rothschild includes it in the blend, is a ringing endorsement.”

And emerging talent is entering Asia’s capital markets, too. In December 2022, Indian wine producer, Sula Vineyards, made its debut as the first pure wine maker to seek IPO on the National Stock Exchange of India (NSE) and BSE (formerly Bombay Stock Exchange). Oversubscribed by 2.33 times, Kotak Investment Banking, CLSA and IIFL Securities served as book runners, with the offer drawing bids worth 15.65 billion rupees ($189.63 million).

Discussing the deal, Heller noted that Sula had done “a great job of making wine approachable and attractive to younger consumers by hosting enormous music festivals and leaning into the lifestyle aspects of wine and wine production.”

Hong Kong under the hammer

The enthusiasm for fine wine in Hong Kong itself is reflected in the city’s role as a key base for renowned wine bars, connoisseurs and critics, including James Suckling, who moved to the market and in 2018, launched his flagship project, Wine Central. Also in Hong Kong’s Central district, is the Landmark Mandarin Oriental’s prestigious SOMM bar, which boasts a collection of over 1,600 champagnes and wines; and nestled in Soho, is Asia’s number one bar, Coa, according to regional rankings.

“Having Christie’s global head of Wine and Spirits, Adam Bilbey, based in Hong Kong is a reflection of our commitment to Asia and our confidence in the region as we continue to witness a rapidly growing client base and appetite for fine and rare wines,” Michelle Chan, head of Wine for Christie’s Asia Pacific told FA.

Chan became a wine specialist following encouragement from her older brother who is a keen collector. In 2010, she left her role in a banking communications team to join an auctions house, before moving to Christie’s at the end of 2019. There, she works alongside Bilbey, who has held several senior roles across Asia, including at Berry Bros & Rudd and Sotheby’s.

“In 2022, we witnessed the highest ever annual auction total for the Wine category at Christie’s Asia – HK$491.5 million ($63.5 million).” 

Across Christie’s global wine sales last year, Asia accounted for the majority of buyers (44%), followed by EMEA and the Americas. Additionally, Asian buyers contributed the most by value (65%), Chan explained.

She attributed Asia’s success to the sale of “exceptional single-owner collections”. In November 2022, the auction house hosted the second of two sales of fugitive property tycoon, Joseph Lau Luen-hung’s personal wine collection. 

In spite of ranking sixth on Forbes’ list of Hong Kong’s 50 richest, Lau’s family-controlled development firm, Chinese Estates Holdings, incurred significant losses from the sale of Evergrande shares, in 2021. This ill-fate followed Lau’s conviction just under a decade ago for money laundering in absentia by a Macanese court – a five-year sentence that he has so far evaded by not entering the Special Administrative Region (SAR). 

Proceeds from the second sale, including fees, came to HK$61.81 million. Drawing participants from 12 countries across Asia, Europe and the US, the live auction closed within 2.5 hours. Lot 5080, a nine-bottle collection of Henri Jayer, Vosne-Romanée Cros Parantoux 1993 – a red Burgundy (Premier Cru, Côte de Nuits) – fetched the highest price, selling for HK$3.25 million.

Sip happens

If the returns from wine investment – as illustrated by Lau’s lucrative collection – sound too good to be true, it is worth considering the unique risks that come with it. Notably, these comprise breakage and counterfeit products, Zhang explained. Additionally, poorly stored wine will make bottles lose their value and ability to be resold.

However, these risks are easy to mitigate by sourcing only from wine professionals and wineries, and by storing wine in reputable bonded warehouses.  Collectors all over the world store their wines in Hong Kong’s numerous state-of-the-art, world-class wine storage facilities, Kapon noted.

One such provider is Hong Kong Wine Vault, which offers maximum security, temperature-controlled storage across 700 cellars with a combined total capacity of over 104,000 square feet (sf); while Singapore Wine Vault presents the largest wine storage facilities in Southeast Asia, spreading across 750,000 sf. 

“There’s a saying in the auctions space that there’s no such thing as amazing wine, just great bottles,” explained Tam. 

He spoke to FA about how the redirection of funds away from travel and into new hobbies during the pandemic has resulted in an increasingly discerning and sophisticated palate among Asia-based consumers. 

Tam coined the term “super provenance”, which he explained as encompassing grape; terroir; and crucially, time. 

“This has been the single most important development in the fine wine industry in the last decade…. Some bottles out there have more Asia Miles than you and I put together, which isn’t conducive to wine’s graceful maturation and development. Exactly how both grape and bottle is cared for over the long-term matters, and demand from consumers and collectors alike is leading to improved industry standards.”

Chan agrees that Asian buyers are seeking out rare and impeccable wines with exceptional provenance – a trend that she expects to continue through 2023. 

“Over the years, we have seen a growing interest from younger Asian collectors in our wine auctions. In 2022, 38% of buyers were millennials versus only 16%, in 2016.” 

She added that Asian clients have become more digitally savvy and are comfortable bidding online.
Assuming that specific risks are mitigated, other factors that affect the price of wine can be similar to those of investing in stocks and also include geopolitical risk.

In October 2019, the Trump administration imposed a retaliatory 25% tariff on European wines with an alcohol content below 14%.

“French wines suffered the most as a result, as demand from the US went down” explained Takabatake. 

“In contrast, Italian wines, which tend to have a higher alcohol content, did relatively better.”

Another political move to knock wine prices globally was Xi Jinping’s efforts in the first years of his presidency to crack down on gift-giving and corruption in the state sector.

But unlike stocks, investors in real assets such as wine, can take comfort in the knowledge that, even in a downturn, their holdings will retain some intrinsic value, Takabatake proposed.

“Even during those [downside] periods, you’ll drink whatever is not making you money. And they’re going to be good wines anyway, right?”

Cheers, to that.   

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