Wine Indexes Gain Popularity

In vino veritas – and perhaps a handsome profit, too, as wine prices soar on strong demand from Asia.

Key wine indexes have surged to record highs in the past two years as consumers in Asia, particularly China, indulge a growing thirst for luxury wines, the Financial Times reported. The Liv-ex Fine Wine 50 Index, comprising first-growth Bordeaux, rose 57 percent in 2010 – beating gold, oil and equities. The Live-ex Fine Wine 100 Index rose 40 percent.

The wine auction market has also seen intoxicating gains, according to the Chicago-based wine auction house Hart Davis Hart. The HDH Auction Index, which tracks 15 key wines sold at Hart auctions, has climbed 29.41 percent in the last three years, according to the company website.

“Asian bidders have been driving large parts of our business,” said Michael Davis, vice chairman, in the July 2011 issue of Decanter magazines. Two auctions held by Hart this spring aggregated nearly $12.3 million. Five of the top 10 invoices went to buyers residing in Asia, and Chinese bidders acquired significant portions of inventory.

The trend is expected to continue as wealth accumulates in Asia. The number of Chinese billionaires increased 36 percent in the last year, the Financial Times reported, and the average wealth of the nation’s richest rose 64 percent in the past two years. Stagnant economies in Europe and the United States have led to anemic demand for fine wines in the Western hemisphere.

Chris Smith, of the Wine Investment Fund, told the Financial Times he expects the market to grow by 21 percent this year and said the commodity is being viewed as a hedge against inflation.

Historically the wine futures market centered on luxury wines from the Bordeaux region of France, but the wine futures market has expanded to include such regions as Burgundy, California, the Rhone Valley and Italy, according to the website wine-searcher.com. Futures contracts guarantee delivery for a set price at a set date. Investors profit when wine prices appreciate substantially, but prices can also decline. Worldwide economic factors, such as unfavorable currency exchange rates, can affect the market dynamics.

“I recommend caution when purchasing futures. With a small handful of exceptions, they can be risky investments,” said Arnie Millan on Wine Thoughts. “If you buy, buy what you want to drink or collect.”