Top Line Review

Volume through the major auction houses dropped by 13.8% in the first half of the year compared to the same period in 2015, yet value remained largely unchanged at -0.23%.  This is due in part to a few very large sales in the first half of the year such as Sotheby’s sale in New York for Bill Koch in May ($21.9m realized) and Zachy’s large Hong Kong sale ($9m) as well as some spectacularly expensive lots that raised the average lot price across the board, including the ten bottles of 1945 Mouton Rothschild from Sotheby’s Koch sale that made an impressive $343,000.  In our view, however, these fairly stagnant figures hide important shifts in demand type and demographics as outlined below.

A continuing resurgence of American demand

One of the more marked trends of the season was the continued move to dominance of the U.S. market at the expense of Hong Kong, while London sales grew slightly.  US sales grew from $82.7m to $86.7m, while live sales in Hong Kong slipped from $51.9m to $40.0m in the same period.  The drop-off in sales to Asian clients, however, is exaggerated by these figures.  Private communications from one auction house show that 44% of all their sales across the board went to clients from Greater Asia.  This suggests two things.  The first is that top Asian clients are still buying aggressively, but that they have been buying in sales around the world.  In contrast, US, English and European buyers will seldom buy in Hong Kong sales.  The reason for this is that it is very easy (and often free) to move wine from New York to Hong Kong, but the reverse is hardly true – it is both difficult and expensive to move it in the other direction. The second and very interesting development is the growth in new corners of Asia, from Thailand to South Korea to Singapore and Taiwan, making up much of the slack for the still lackluster market in the People’s Republic.  We can hope and reasonably expect that growth in the US and secondary Asian markets will continue to more than make up for any falling off due to the Brexit vote, as the London auction market has been in decline for some time; it is also true that a devaluation of sterling may actually drive more business in London as it becomes cheaper for foreigners to purchase wine there.

Burgundy: at the top?

The picture of category dynamics presented in the first half of the year was interesting indeed.  While much of the press was still concerned with Burgundy wine, indications may be that this category is beginning to slow.  1990 Romanée-Conti was essentially flat to last year at an average $16,526/btl, and substantially down from the peak of an average $20,855 in 2014.  1990 Rousseau Chambertin and 2010 Liger Belair La Romanée were both dropping in price (-5.9% and -12.1% respectively), and white burgundy suffered as well, as demonstrated by 2005 Coche Corton Charlemagne (-5.8%) and DRC Montrachet (-16%).

Certainly, however, there were exceptions to this trend, such as the ’93 Leroy Musigny (+20.9%), and examples of room for further growth, such as the ’99 La Tâche (+6.9% to $4,168).  The overall takeaway, however, is that this category could well be at the top of the market for the current cycle, and appreciation-minded buyers might sell some wine now to lock in profits.  Of course with wine as rare as top flight burgundy, the best appreciation will be seen by those who buy and hold stocks, as demonstrated by the same ’90 Rousseau Chambertin that is -5.9% this year.  It is +55.5% over five years and +245.8% over 10 years.

Bordeaux gathers strength

Leading indicators now demonstrate that Bordeaux has definitively turned a corner.  ’82 Lafite is up 14.7% over last year.  While down 40.3% from the peak, it is still +151.8% over ten years.  ’89 Haut-Brion has also turned in a strong performance at +19.9% over last year.  The average price for this particular wine is at an all-time high at $1,636, and nine dozen bottles sold at the Koch sale at prices in excess of $2,000 per bottle.  Elsewhere ’86 Mouton and 2000 Pétrus are also showing increases over last year.  Pétrus is only -2.5% off it’s 2011 peak; while the average price for the ’86 Mouton is still -21.3% versus the peak of the market, the results for this wine from the Koch sale were well above it, and even results from the June 22 Acker sale were close to this level.  Bucking this generally very positive trend was the once-heralded 1990 Cheval Blanc, -8.3% v. last year, -26.3% v. 2011, and even -13.7% as compared to 2006.

Other sectors

It may be the case that some results such as the 1990 Cheval reflect a waning influence of the wine critic Robert Parker.  Long a Parker favorite, the 1990 Cheval has suffered in recent years, perhaps as a result of the fashion swing away from this super-rich style of wine.  Although it is difficult to establish causality, it could well be the case that results in the Rhône valley are suffering from a similar malaise.  ’99 La Mouline (-1.9% v. 2015) and ’90 Rayas (+2.8%) are both close to flat.  ’61 La Chapelle is still by far the most expensive Rhône wine ever sold at auction, but it’s fortunes are plummeting: -22.2% from last year, and -29% from 2011.  Other categories are also fairly lackluster: Italian classics are showing disappointing results, such as ’07 Masseto (-3.2%) and ’90 Monfortino (-4.5%).  The New World scarcely fares better, with ’01 Grange (another Parker-annointed wine) flat at -0.6%, and ’94 Dominus showing slow growth at +2.5%.  Even the legendary ’97 Screaming Eagle is up only 5% on last year.  One unexpected bright spot is the market for Port: ’77 Taylor’s is +10.6% on last year (although it is only +2.7% compared to ten years ago).  Truly iconic wines, such as the ’63 Nacional, however, never go out of style.  It is +17.5% compared to last year and +64.4% compared to five years ago.

Conclusion

Rising prices for classic Bordeaux seem to bear out traditional advice: for best appreciation, buy conservatively, and hold wines for the long term.  For those looking to divest, the second half of 2016 seems like a prime opportunity to realize profits on your burgundy purchases, and fewer Bordeaux wines are underwater than at any time in the past five years.  With rising demand in the US and some parts of Asia making up for the drop in UK demand the market is now poised for growth.