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20/09/2016

Post Brexit and Three Months On

by BI Investment Group

Despite the initial outpouring of despair, rejoicing and plain old head-scratching that followed the UK’s vote to leave the EU back in June, it feels as if we are little closer to any kind of solution to the Brexit conundrum. Certainly the summer recess and long European holiday have created delays; since then we have seen more of what the Fat Controller might call ‘confusion and delay’. However in wine terms, the seismic effects of the referendum were felt immediately and the tremors have continued. Almost regardless of what happens in the back half of the year, 2016 is destined to be looked upon with considerable satisfaction as the key features of a robust En Primeur campaign and rising market prices became increasingly locked in. There is no question that whilst the seeds of market recovery were planted in late 2015 and Brexit provided the ‘blossoming’ impetus, at 3 months on from this historic referendum the fruits of the market are looking ripe indeed.

 

Looking back at Q2

April 1st through June 23rd proceeded in much the same manner as Q1 as solid demand and constrained supply helped to move prices higher. Then along came Brexit (or at the very least, the unexpected triumph of the Leave vote) and the violent pummelling of sterling that followed in its wake (off 13% against USD and 11% against EUR within a few days) with market sentiment correctly suggesting that there was more to come. For non-GBP markets this amounted to an unanticipated ‘summer sale’ and the orders flooded forth in what were some of the busiest days’ trading we had seen in many years. For a product that is today in substantial part sourced in Europe (and the UK) and sold to Asia these FX moves make the prospect of further demand and higher prices more inevitable than in a very long while.

June turned out to be BI’s strongest sales month for many years, heavily influenced by both the release of many of the key wines in the 2015 En Primeur campaign and the afore-mentioned significant global currency swings.

BI Bloomberg Brexit Currency

Source: Bloomberg.com/markets/currencies 

 

In the wake of the Vote

The flood of orders precipitated a drain on stock held within the UK. The BI LiveTrade Index, which tracks the prices of around 300 leading Bordeaux wines and Champagnes, continued its path from the uncertain pre-vote conditions (which themselves caused GBP weakness) to the ‘new now’; it has risen 16% during the year to date (25/8/16), the highest increase since 2010 when the Asia market exploded following the removal of Duty on wine into HK and the release of the now-legendary 2009 Bordeaux vintage.

With interest rates continuing to fall the search for yield is making the appeal of alternative assets all the greater. 

BI LiveTrade Index September 2016

Q3 so far

Since the start of July the BI LiveTrade Index has risen a further 5 points to 134.04, taking the total year’s rise up to 17.5%. There has been a moderate slow down of sales in Q3 versus Q2 and Q1 2016, but this is to be expected considering the summer break; the fact is that sales are 26% higher for the same period in 2016 versus 2015, giving great confidence to the wine market and proving that the immediate post-Brexit rush was no flash in the pan but symptomatic of significant global demand simply waiting for the market conditions to be correct.

 

The impact for collectors and investors

As the openly-available stock in the UK market drains into Europe, Asia and the US at these ‘temporarily’ friendly prices, the search for replacement stock has escalated. This has of course seen prices of UK stock increase – as those of you who have looked at the live valuations in your BI online reserves accounts will no doubt have seen! We have typically taken the view that the ‘trophy’ vintages of 1989, 1990, 1996, 2000, 2005, 2009 and 2010 have been the smartest places to invest and we have certainly seen excellent performance from the older vintages, alongside a very welcome return to form for the modern legends of ‘09/’10.

However demand from Asia has come across the board, with the so-called ‘sub-prime’ vintages making up many of the highest volume performers in both July and August; the largest volume sales were from wines across the 2006, 2008 and 2012 vintages. On the bid side, our trading team have watched the 2007s coming under considerable availability pressure, with the 2004s looking next in line to vanish from the market.

BI Quarter 3 Vintage Chart

We cannot recommend highly enough that you take the time to have a look at your BI Reserves online and the valuations provided for your wines. Whilst there will most likely be wines you are not ready, or willing, to part with, you may have some which has risen in value enough to tempt you into selling. If you would like to maintain the scale and/or value of your stockholding, but recognise that there are some wines which may be best ‘moved on’, then do talk to us about switching out of your current position and into a new strategy.

If you are a holder of stock in a BI Reserves account, simply register – or if you are already registered, just log in – and take a look at the valuations provided. You can add wines to our broking list and they will appear for sale on our website within minutes. And remember, for any LiveTrade wines you hold, you can sell immediately at the bid price through the LiveTrade platform; or if you want to add more to your portfolio, simply meet our offer price and the trade is done.