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market report

Liv-ex is an electronic exchange for fine wine used by professional merchants and collectors. Each month Liv-ex publishes a detailed Market Report analysing fine wine prices and trends in the marketplace. The Market Report is part of a package of data and services offered to subscribers of Liv-ex, with subscriptions starting at £39.95 per year.

Below is just a brief extract from the latest Market Report. An extract will be offered on wine-pages as soon as it is published each month, but for the full report and Liv-Ex's extensive services, sign-up with them at www.liv-ex.com

Liv-Ex Market Report
by Liv-ex.com, November 2005

Trading
Activity in November was robust with the exchange notching up its second strongest month of the year after September. Exchange turnover was up 18.5% month on month and 40% year on year. Stock held by the leading UK merchants dropped 1.4% for the month after last month's inventory build in preparation for Christmas. The Liv-ex 100 gained a further 1.7%, driven by top Bordeaux names, but also an up-tick in DRCs. Breaking down November's trade by region, Bordeaux retained its above average share of Liv-ex turnover. While this is in part explained by continued investment grade buying (SIPPs again? More later.) there was also a level of discounting to move large parcels before year-end.


(much more analysis and charts by region in the full report)

Major Movers
The table below shows the major movers, month on month, in November. The broadening of the buoyant market saw even one or two garage names of the right bank come into focus- Le Pin 1998 leading the charge. DRCs were also playing catch up as buyers continued to pursue trophies.


(the featured wines are analysed in detail in full report)

Critical Corner
This month we are featuring a new book on wine investment rather than the usual look at what the wine critics are saying. The book, entitled: “Wine Investment for Portfolio Diversification” by Mahesh Kumar, was published by The Wine Appreciation Guild in August 2005. This is possibly the most thorough piece of academic analysis on investing in fine wine ever attempted. With nearly 70 pages of appendixes alone and most of the body of text dedicated to portfolio theory, methodology, risk assessment and data analysis; it is very diligent and credible piece of work, if not always easy going! As Michael Broadbent comments in his foreword: “No need to rely solely on luck. A serious study of Mahesh Kumar's structured analysis could be of considerable help.”

The author has constructed an index of fifty wines, made up entirely of the best Bordeaux names, including the First Growths, Cheval Blanc, Petrus, Cos D' Estournel and Pichon Lalande. He has then observed and contrasted the performance of his index over rolling 5, 10 and 20 year periods against the FTSE 100 and UK government bonds. His conclusion is that while fine wine produces comparable returns to equities in absolute terms, low volatility and an even lower correlation to the performance of traditional assets makes it a fantastic diversification tool.
(review and analysis continues in full report)

Final Thought
The main talking point in the market in recent weeks has revolved around the UK Chancellor's u-turn on Sipps in his pre-budget speech earlier in the month. After 18 months on the statute books, Gordon Brown unexpectedly changed his mind on a policy that would have allowed savers to invest in holiday homes, property, fine wine or classic cars for their retirement. Indeed, spare a thought for the pensions industry, which had raised £5bn in anticipation of the changes or some 20,000 people who are believed to have bought second homes!

There is no doubt - as we have highlighted in recent newsletters - that Sipps has been a major contributor to a surge in fine wine prices in recent months as traders and private collectors positioned themselves for the change. Indeed, year to date the Liv-ex 100 is up 17.9%, of which much of the movement has come since late summer. The obvious conclusion, therefore, is that there is now going to be a wholesale sell off. Our suspicion is that this is too simplistic.

While the UK remains a very important market for top claret, demand from new markets like Russia and China, which have created dozens of new billionaires in the last five years, has also been significant, as has a general improvement in the global economy. Indeed, fine wine is a classic late cycle play and improving conditions across Europe, Asia and US have provided considerable support.
(continued analysis and forecasting on SIPPS in the full report)

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