Recent reports revealed that wine investment has overtaken classic cars as the most favoured investment choice of the private enthusiast. Yet as the plethora of investment funds focusing on wine attest, the sector is of prime interest to the serious money men as well. So what does Brexit mean for the future of wine investment? As the post-Brexit landscape starts to emerge, what are the considerations for the canny investor?
Pound packs less punch
Foremost to bear in mind, whether fleshing out a personal collection or charting the next steps for an institutional fund, are the new movements in the pound. On the night the United Kingdom voted to leave the EU, the pound had been trading at around €1.45. Already, amid uncertainty surrounding the eventual outcome of negotiations, the pound is buying as little as €1.17. Analysts warn that future volatility may still lie ahead.
So is this really the ideal time to make big purchases on the continent? Already competition for the most prestigious vintages has long been an international pursuit. Japan led the arrival of Eastern investors a generation ago and it is now six years since the launch of the first government-backed Chinese wine fund. With global interest in the premium labels likely to see prices holding up well, UK investors operating with a weakened pound are set to remain at a temporary disadvantage when chasing the top en primeur vintages.
Decline of the City?
The investor with an eye on the fortunes of the City of London may also be wise to wait and see. Although the culture of the City lunch has long been in decline, the spending power of London bankers has been a driving force for the city’s luxury sector. Already since Brexit, prices for prime London property have dropped, in some cases by as much as 20%. Efforts are already afoot in the financial centres of Frankfurt and Paris to attract business. Whether the top end of the London wine trade can escape similar consequences to the property sector will turn in large part on the City’s fortunes in the uncertain Brexit negotiations still ahead.
Could wine keep going up?
Yet wine could remain an attractive investment for exactly that reason. The flight to less conventional investment options at moments of uncertainty is well known. Despite its untested status and volatile movements, the new currency Bitcoin enjoyed a meteoric rise in value in the years after the banking crisis of 2008. So did that traditional safe haven for nervous money, gold bullion. With the prices of Bordeaux seconds trading at 600% of their 2003 value, some have questioned the space for further appreciation. But it seems certain the wine will continue to attract the attention of the investors whose eye goes beyond temporary turmoil to long term appreciation.
Brexit may prove a boon to the domestic British wine industry. Today’s English vineyards sit in the places where champagne-like wines were grown during the Middle Ages, when slightly different climates allowed such wines to be produced on both sides of the English Channel. While the pound continues to drop, UK investors will be tempted to divert their purchasing to domestic sparkling wines and whites, which are rapidly attracting praise and prizes in equal measure. This may also be the moment too when such vineyards have an opportunity to come to notice overseas. Ever more attractively priced to continental buyers as the Euro becomes a more powerful purchaser, English domestic wines are well placed to achieve their breakthrough moment overseas.
Lastly, Brexit may prove a road bump in the rise of prosecco of recent years. The alternative to champagne has become fashionable as tastes widen and sparkling wine is no longer seen as the preserve of special occasions, so much so that the wine enjoyed a rise in sales in 2016 of fully 40%. Yet an unforeseen outcome of Brexit could be less Italian fizz at social occasions across the country, as trade tariffs return in the aftermath of unsuccessful negotiations.
Such concerns have long been raised before, however, with events from the Iraq War to the credit crunch all bringing their warnings that the age of profitable wine investment may be coming to a close. Every time, wine investment has continued to produce steady and safe returns for the patient investor. At a moment of uncertainty, both the private investor and the institutional market man is wise to think through the implications of the new landscape, but there is every reason to think that wine will continue to be as successful a long term investment as before.