Last Friday, we have co-organized two think tank seminars under the series theme “Think like an Insider” with Hong Kong Trade Development Council covering Future of Wine Investment in Asia; and the next big opportunity in China. As part of highlighted events during the 11th edition of Hong Kong International Wines & Spirits Fair, these two seminars are designed to introduce constructive disruption to current industry developments and we were thrilled to see a turnout of over 100 industry veterans and seasoned wine professionals at the event. For those who were not able to find time to join us, here goes a summary of notable takeaway points from our Wine Investment seminar.
Wine vs Conventional Investment
Valued at US$5 billion, global secondary fine wine market is a niche sector when compared against conventional investment vehicles like stocks and real estate. Largely a commercial market that traditionally runs on personal trust and specialized training, the world of wine trading does not come with as much regulatory tentacles as financial markets. The potential of wines as a financial asset has yet to be realized and if it does, according to Roland Muksch of LGT Bank (Hong Kong), it will take substantial time. Muskch also remarked that derivatives may be the more viable way to realize investment potential in wines. Consider creative products in the financial world such as index tracking funds. Century old en primeur system provides for the basis to trading of futures contract in wines. Non-movement of wines when being traded will be crucial. Not only does it save on logistics costs and minimize movement risk, the preservation and storage of wines destined for investment in a physical location also guarantees integrity, conditions and provenance.
- Wine is not a financial asset
- Wine is a commercial asset.
- Some wines have proven to be able to preserve or gain in value over time
- Assetization of wines will require fair dose of creativity and maximum efforts in preserving its integrity and provenance
- Possible forms of wine investment that may gain momentum in future: Wine index tracking funds, more robust trading of futures contract or instant trading of wines based on transfer of legal title instead of actual physical transfer of bottles/ cases
Wine vs Contemporary Arts vs Watches
Patti Wong of Sothebys led us through a very interesting and insightful comparison between wines, contemporary arts and watches. Within the auction world, figures show that number of bidders have been on steady increase at 2% per annum. In terms of average lot values, wines surpass both contemporary art (8%) and watches (3%) and deliver a steady growth rate of 11% in average lot value over past 10 years. Whilst wines have always been known for its heterogeneity, when compared against contemporary art and watches, wines come across more accessible and consistent. It is not uncommon for contemporary art or luxury watch pieces to be extremely limited in availability. A solo piece commanding millions of dollar in hammer value may grab immediate attention, however, the inherent rarity and potentially irrationally skewed value confirm these items as collector pieces and ultimately compromise liquidity if they are to be seen as asset. Overall, Wong considers wines a superior option over contemporary art or watches for those who might want to collect to consume whilst retain the option to resell. Wine’s proven track record of consistent price performance makes it an easier item to resell than other luxury assets. Over past 5 years, wines have taken more collector dollars away from luxury jewellery and watches auction. Total auction sales from wines, jewellery and watches has seen wines contributing a majority of 56% sales in 2019 YTD, a tri-fold increase from 2014.
- Auctionable wines have shown a proven track record of consistent price performance
- Lower lot values compared against art or watches mean greater accessibility
- Wine is a key contributor to auction sales compared against other luxury items in Hong Kong.
Trust and Provenance
Greg De’Eb of Crown Wine Cellars and Darius Allyn Master Sommelier both spoke at length about the importance of trust and provenance when it comes to wine trading. Understanding merchant reputation and provenance preempts price competitiveness. Commoditization of wines in Asian markets have seen buyers distracted by price-based promotions. Emergence of technology such as provenance tracker and conditions indicator is an encouraging development bringing buyer focus back to conditions and provenance of a bottle. Allyn cites Domaine Ponsot incorporating a temperature-sensitive white dot on their labels to help consumers understand whether a bottle has been subjected to high heat. In 2017, Domaine Ponsot added a new authentication system that involves the installation of a NFC-enabled InTact chip on the bottle. Upon scanning, wine owners will be offered information including a detailed temperature graph and an indication on whether that bottle has been opened. Both De’Eb and Allyn warn of the danger of counterfeit wines in the market. Counterfeit wines is a billion-dollar problem within the world of wines that effectively undermine the viability of wine investment. Future of wine investment of Asia will depend on heightened awareness of provenance and deployment of tools to add transparency and reliability on a wine’s authenticity claims and provenance.
- Price competitiveness of a bottle should take a back seat when it comes to wine investment. Authenticity, provenance and conditions are of higher importance.
- Always try to know your merchant or dealers.
- Ask about provenance of wines before you invest, whether for consumption pleasure or future resale opportunities.
- Be wary of counterfeit wines.
Role of Technology
Our own Mariana Lam shared her insights on the role of technology in the evolution of wine investment in Asia. Wine authenticity and traceability is one of the key areas where technology has been deployed to enhance industry capability to monitor and communicate with end consumers. It involves the use of smart sensors and tamper evident packages to add an extra layer of quality assurance to consumers. At WWX, we exclusively use NFC-enabled tags VinoGuard to track wine movement and store key provenance data. These data will soon be synchronized onto our fine wine blockchain database, so to undermine any malicious attempts of wilful manipulation of records. In parallel, since late 2018, we have been examining the application of advanced statistical model similar to those used in commodity markets to enable fine wine price predictions. Trading advisory are generated basing not only on wine prices but also insights gleaned from big data analysis on FOREX movement, Weather & Climate changes, Wine Drinking Windows (i.e. time value), etc. Delivery comes in form of virtual robo-advisory and innovative FinTech products.The impact of technology on development of wine investment lies chiefly in its potential to democratize and exponentially expand what is now a niche and specialized sector. The ultimate role of technology is to digitalize trust and establish a secure ecosystem for wine exchange and trading.
- Robo-advisory will become a cost-effective whilst personalized medium to make wine investment more accessible to wine lovers.
- Continuous efforts in using technology as a tool to guarantee provenance and conditions will be seen.
- Big Data and Artificial Intelligence will likely help provide a fair valuation of market value of a bottle of wine, and further, offer a reliable projection of future prices.
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