This year has been a difficult one for investors across the globe. The COVID-19 pandemic has plunged the world into economic uncertainty. Stock markets are down, and many are predicting a recession, amongst other consequences, as the global economies struggle to recover from the impact of the virus. Spending is down, supply chains have been disrupted, and few industries will escape the ramifications that the lockdown procedures are likely to engender. Given all this, there is much uncertainty facing investors going forward, but fine wine may represent a safe haven for those who choose to invest now. First, let’s briefly examine the current global situation and then discuss the advantages that fine wine has over traditional investment avenues such as equities.
In the UK alone, there was a decline in GDP of almost 20% between the months of February and Ma and, by the end of June, over 10% of businesses were still unable to operate at all. Yearly estimates put the UK economy at -13% by the end of the 2020; with experts warning it may not recover to pre-crisis levels until 2022. This is a situation being mirrored worldwide; by the end of February, stock markets were seeing the biggest single week declines since the 2008 banking crisis. China’s economy was severely hit, with some reports predicting it may contract for the first time in 50 years. Additionally, the West Texas Intermediate futures price for crude oil fell below zero for the first time in its history.
In the United States, things are even more uncertain. As of July 2020, the country is still facing the worst of the outbreak, with cases rising exponentially every day. The automobile industry has completely shut down and sales have fallen by 40%. Sports events are still being cancelled or postponed on a daily basis and many other industries have been similarly affected. This includes housing, with nearly a quarter of residents in America failing to meet their housing costs for the months of May and June.
During times such as these, investors may turn to assets other than equities in order to guarantee a measure of returns and offset the impact of the crisis. Following the 2008 crash, the traditional alternative asset, gold, managed to outperform equities; providing a net positive growth of 1.6% between November 2007-09.
Volatility in the short-term and growth over the next 5-year period should now be the highest of concerns for investors, given the unfolding global situation. Reducing risk in portfolio is paramount and alternative investments, the so-called “passion assets”, can be invaluable for this. Recovering from the COVID-19 pandemic has only just begun and may shift the economic landscape significantly as industries adjust to new parameters and working conditions.
Reports from the trading index indicate that so far, fine wine is staying stable. This means it could represent a much-needed safe haven for investors during this crisis, should they choose to diversify in this way. One advantage that wine has over other assets is that it does not need to be moved in order to provide great value to investors; as many choose to hold fine wine in bonded storage in professional facilities, or other high-quality establishments. This allows fine wine to be owned and to subsequently change hands across individuals around the world without the need to to arrange logistical solutions. It avoids any pitfalls that are currently associated with the disrupted supply chains, or chains which are currently thought to be at risk.
Whilst the retail wine industry is going to be affected by the fall in consumer spending and the hits to the travel and events industry over the next 12 months, fine wine is exempt from these concerns. There is no time pressure on the sale of fine wine; they are made to age and their scarcity helps improve their value over time. The Wine index mentioned above projects a 25% performance growth over the next 5 years for the fine wine market, compared to a fall of 5.6% for the FTSE100.
The fall in the Asian economies will also provide investors a great buying price while their markets are the worst hit and this will allow for great returns as global markets recover in the aftermath of the pandemic. There are some small concerns that the fine wine market could suffer, as many potential attendees of the “en primeur” tastings for this season will not be able to make it from outside of Europe. This minor concern aside, however, the Liv-Ex report still predicts fine wine to massively outperform equities and even gold in some cases when based on 5-year predictions.
To summarise, it is clear from all reports that have been published so far that the COVID-19 pandemic is going to massively effect global economies. The crisis will almost certainly lead to a recession similar in scope to the one that occurred in the aftermath of the 2008 banking crisis. In light of this, it behoves investors to get ahead of the curve and diversify away from equities as soon as possible in order to secure worthwhile returns throughout the coming recovery efforts. Equities are likely to take many years to recover fully and return to pre-pandemic growth levels, as all major industries have been affected. Fine wine in this context, however, appears to be recession-proof.
The unique properties of fine wine as a passion asset that can change hands without the need to be physically moved, as well as the inherent nature of fine wine to gain value as time goes on, allows investors the chance to avoid some of the hardships of the pandemic by investing now and even potentially taking advantage of the low prices currently being reported in the Asian market. After a period of around 5 years, fine wine is set to only increase in value and even outperform gold in some cases. This makes now the ideal time to make investments into fine wine.