Status Of The Wine Market At The End Of 2022 - And A First Look At 2023

Wine Market Insights

Soon the calendar says 2023, and the wine market is heading into the new year with steady returns. We reviewed the market back in July 2022 and examined the wine market again in the video below. After all, we monitor the wine market daily and would love to share those insights. At the end of the video, we go through different scenarios for 2023. You can also find recommendations on areas to watch out for and what to be careful of.

A Brief Review Of The Third Quarter

In August 2022, Eurozone inflation reached another record high of 9.1 %. The figure has risen since November 2021, and soaring energy prices partly drive a new record high. Furthermore, the British pound fell to its lowest level since 1985, and both British and US equities dived in the third quarter. 

Furthermore, the gap between the US dollar and the British pound reached historic highs. The weakening British pound made 'fine wine' prices appear much more attractive to US dollar buyers, taking advantage of increased purchasing power.

Add to this that the IMF, International Monetary Fund, announced in September 2022 that the economic slowdown intensified in the third quarter due to high inflation, supply chain problems, and tighter financial market conditions. 

And so, how does wine investment position itself in a market dominated by great uncertainty?

Basic Premise For Investing In Wine

Despite uncertainties, macroeconomics, and geopolitical shifts in the world, the premise for wine investment has remained the same. First and foremost, wine is a physically un-geared product. Wine excels at low volatility, and then it remains a long-term investment that has historically proven resistant to, for example, rising inflation and recession. 

Supply and demand are also important, and the growth of potential future buyers is another exciting element. According to Knight Frank's Wealth Report, within the next five years, we will see an increase of approximately 25-30 % in the number of UHNWIs (Ultra High Net-Worth Individuals) worldwide. These basic premises have stayed the same - even in previous economic downturns. 

And while this year has been suitable for investors, it is essential to remember that wine fundamentally does not suit high-risk/high-reward investments. Wine investing is characterized by moderate annual returns and stability.

A View Of The Market Situation

As many media report, wine has done well in terms of returns over the last few years, but we must consider the wine market with critical eyes. In a challenging market, wine is up 14.3 % YTD, according to the broad FineWine-1000 index from Liv-Ex. We are still determining if we are in the eye of the hurricane or if the storm will soon hit the financial markets in earnest. 

But will the positive trend for wine continue into 2023?

Assuming the aforementioned basic premise for wine investment remains unchanged and the strategy is still long-term, it resembles scenarios we have seen before. 

Historically, there will be fewer buyers for the most expensive wines in the short term. Less trading activity and fewer price points mean that it will be more difficult to price these if they are to be sold at this time. They, therefore, become less liquid - not to be confused with unsaleable. Everyone wants to buy at the bottom and sell at the top, which is almost impossible in practice.

Yet the trading patterns we are seeing right now are very similar to the premise investors bought into in 2018 and 2019 - and the investors who invested then are some of the most satisfied investors today.

Champagne

Right now, we are approaching a more normal level where it is again possible to buy some of the very best wines at a relatively low price. Champagne, for example, is a category that is far too cheap compared to Burgundy and Bordeaux. And although we may be entering a period of economic downturn, Champagne will always be attractive - driven by consumption and relatively low price. 

In July 2022, Comité Champagne announced an increase in the maximum permitted yield to 12,000 kg/ha for this year's harvest. This is the highest yield since the 2008 vintage, and the increase is due to a sharp rise in global demand. The same Comité reduced the permitted yield to 8,000 kg/ha in response to the Corona pandemic, although demand quickly returned to normal. This raises the question of how much the 12,000 kg/ha means and whether there is enough to satisfy demand. In any case, it will be many years before the 2022 champagnes even reach the market.

Burgundy

Burgundy has been almost impossible to find in recent years - especially at reasonable prices and in larger quantities. The supply and demand balance will always favor investors due to Burgundian micro-production. Hopefully, we will see some opportunities in the short run where entry price and quantity are attractive for investment. Burgundy is experiencing a spate of low-yield vintages, partly caused by climate change, which only makes Burgundy even more attractive in the long run, assuming it is available.  

Italy

Another asset that has proved robust in times of crisis is Italian wines, as we saw, for example, during the Financial Crisis in the period from 2008. The market situation is similar to the one we saw a few years ago when 2018 was an exceptional year for investors. The trade wars and turbulence in Hong Kong challenged 2019 and 2020. During that period, we saw the Italian sub-index Italy-100 among the best performers on the UK wine exchange Liv-Ex. This is undoubted because consumers do not just stop drinking wine. Italian wines are in a price range that allows for high ongoing consumption. In addition, we are looking into some very attractive vintages from Tuscany, Barolo, and Barbaresco.

Bordeaux

It is essential to point out that there are still categories that investors should address with caution. Bordeaux is such a category. The best wines from Bordeaux, such as Petrus, Le Pin, or Cheval Blanc, will continue to be a good investment in the long run. But some of the younger Bordeaux wines will be less attractive over a five or 10-year horizon. The ratio between quantity and consumption needs to be more attractive, and entry prices need to be lower.

Why Do Investors Seek Out Wine?

The third quarter of 2022 shows that RareWine Invest investors have bought more wine than ever. Investors seek out wine because the stock market has been less attractive than it used to be. Investors are looking for stable and crisis-resistant assets. When the stock market does well, the wine market typically does well too. But when the stock market is doing poorly, the wine market is not necessarily doing poorly. 

So even if we face a period where prices do not rise nearly as much as we have become used to over the past 1-2 years - and even if prices fall slightly in individual positions - the premise for wine investment is still intact.