Fine Wine Stable Amid Covid-19 Market Turmoil

19/03/2020

The continued global spread of Covid-19 has wreaked havoc on the markets in recent weeks, but those who have already invested in fine wine can congratulate themselves on choosing a stable and safe haven for their assets. According to Liv-Ex, the UK’s main trading platform for fine wine, the fine wine market has proved extremely resilient to the current economic turmoil afflicting global equities as shown by the graph below.

During these uncertain times it is vital for investors to fully understand how the markets are moving and to feel confident that they have chosen the best strategy to protect their assets and diversify their portfolio. We spoke to Mike Heffernan, OenoFuture’s Head Financial Analyst, to discover how the markets have reacted to the spread of Covid-19 virus and what might happen over the next few months:

“The current market turbulence has seen moves which most people currently actively investing, whether privately or professionally, have never witnessed before. You would have to go back all the way to 1987 to get an idea of exactly how dramatic the sort of moves which have been occurring this year are. Whilst there have been bigger declines as a percentage since 1987, they were not as violent in their daily movements. 

This bear market started on the 20th February after US markets hit new all-time highs the previous day. In less than a month the Dow peaked at 29,568.57 before falling to 19,882.57 (a drop of 32.76%), the S+P 500 peaked at 3,393.52 before falling to 2,367.04 (a drop of 30.25%) and the Nasdaq peaked at 9,838.37 before falling to 6,828.91, (a drop of 30.59%). 

The FTSE did not manage to make a new all-time record in the up-trend from 2018, having topped out at 7,689.85 earlier this year. It dropped to 4,898.80, a stomach-clenching fall of 36.30% which had many investors clutching their share certificates. This larger decline compared with the global market response was caused by investors believing that the UK’s reaction to COVID-19 is less robust than other countries. European stocks have performed similarly to the US markets with some hitting new all-time highs and all seeing falls of just over 30% so far.

Whilst one can never be sure how long anything in markets will last, I would say it is a fair bet that the current crisis has a lot further to run & it will take years for markets to recover to their previous levels. If we look at previous episodes of economic crises, bear markets over the past 50 years have tended to last for approximately two years and the Dow Jones Industrial Average did not return to its 1929 peak until 1954 following the Great Depression. Even once the dust has settled from Covid-19, company debt levels and price-to-earnings ratios will come into the reckoning causing longer-term damage which will stretch far into the future.”

So, how can fine wine provide shelter from this highly unpredictable and relentless economic storm? For starters, fine wine has very little correlation to global equities, with prices generally only affected by supply and demand. During the 2007-2009 economic crisis fine wine only dropped by around 10% while equities fell by over 50%. According to Liv-Ex’s most recent reports trading has remained stable over the past couple of months with no evidence of jittery investors rushing to exit the market. 

Those who have already invested in fine wine are in a very strong position to weather these traumatic economic conditions, but it isn’t too late for investors who haven’t yet chosen to diversify their portfolio. Interestingly, during the previous recession both sales and consumption of fine wine rose as drinkers chose to enjoy mature wines at home rather than dine out on a regular basis.

This trend looks even more relevant with the threat of Covid-19 encouraging many individuals to minimise time spent outside the home whilst also continuing to enjoy the good things in life. Increased consumption of rare wines is a critical price driver since scarcity rises with every bottle that is drunk.

Investing in fine wine also comes with a huge added benefit that you don’t get with any other asset class; you can always enjoy a glass or two to calm the nerves! All of our investors’ wines are securely stored in controlled conditions in bonded warehouses in the UK, but individuals can withdraw a case or two at any time for personal consumption should you need supplies to weather the long economic turbulence ahead.

For more information about investing in fine wine, please contact the OenoFuture team at info@oenofuture.com

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