In this episode of China Money Podcast, guest Powell Yang discusses Chinese investors’ increasingly important role in fine and rare wine investments.
Q: For those of us who don’t know much about investing in wine, how does it work?
A: I think we can look at wine investment as any other commodity investment. The reality is that 99 percent of wine made in the world today won’t go up in price. The proportions of the wine that do go up in price are very small. Most wines that’s traded in high dollar amount are classified Bordeaux and Burgundy.
Q: That does sound like a very niche market. What types of investors are better positioned to invest in wine?
A: Everyday investors can still invest in wine by buying tried-and-true labels, such as your first-growth (Bordeaux). If you buy it at the right price, you won’t lose money on it. But because of their labels, their prices are also very high and your upside is limited.
Q: Your focus is to explore the Chinese investor base for wine. What kind of (wine investment) growth have we seen in China?
A: With Chinese investors’ appetite growing for wine, the producers are shifting their focus and availability to China and the Hong Kong region. A lot of folks in Bordeaux and Burgundy frequently travel to Hong Kong.
The Wine Expo 2012 is taking place in May in Hong Kong. It’s not something they normally do in the region. But now with the strong demand, they are doing this signature event in Hong Kong.
Q: What is the current demand from Chinese wine investors? Are they picking up?
A: It seems like the interest in Bordeaux has soften a bit, which can be attributed to market correction. For example, Lafite Rothschild 2000 vintage was trading at about 1,500 dollars a bottle in the summer of 2008. As the global economy dove and in early 2009, it was trading at 800.
Granted, at 800 dollars, it’s still a healthy return from the initial release price. If you bought on futures, you could probably buy it at 250 dollars. So it’s still more than 300 percent return. But since February 2009, the wine has gone up from 800 dollars to 2,500 dollars a bottle during summer of 2011. That’s a ten-fold increase from the initial release price. And now it’s back to 1,500 to 1,700 dollar range.
We’ve seen a pick-up in interests in Burgundy, the new fashionable choice for Chinese investors, partially because of its limited supply. If there are ten cases of Bordeaux available, then Burgundy has one.
Q: What’s the most common mistake that Chinese investors tend to make?
A: The mistake Chinese wine investors tend to make is to chase the market in disregard of the price. They could also be impatient to see their wine collections increase in price, though generally it is recommended to hold wine for at least five years to achieve a reasonable return.
Our Guest Today:
Powell Yang is director of consignments at Spectrum Wine Auctions, an auction house of fine and rare wine established in 2009. Yang’s primary focus is to explore potential wine investors, particularly in the fast-growing Chinese market. Previously, Yang worked at Anheuser-Busch, Diageo Chateau & Estate Wines, and Winebid.com. Spectrum Wine Auctions is a subsidiary of Spectrum Group International, Inc.