Those who keep a regular eye on our Trading Page will have noticed a gradual shift taking place: the price quotes have been increasingly focused on vintages from 2005 onwards. Given our particular strategy, it is only natural that as new vintages enter the market then, provided attractive opportunities exist within those vintages, other vintages may begin to look less appealing. The last three vintages released from Bordeaux – 2014, 2015 and 2016 – have all been brimming with opportunities, and this means a number of other wines/vintages have moved out of our sphere of interest.So we thought this might be an appropriate moment to post a description of our strategy which could perhaps be best referred to as narrow focus relative value trading.
After the frenzied activity (if only for a few brief periods) of the en primeur campaign, it is not unusual for the Bordeaux market to be fairly quiet in the summer months. It is a bad time of year to be moving wine around in any case and so many merchants and traders take an extended break. Activity in July was particularly subdued but bids remained firm and prices were stable despite the lower volumes.
This mood continued into August but over the course of this month sterling suffered a period of virtually relentless weakness against both the USD and EUR but particularly the latter. In the second half of the month we consequently saw a significant surge in activity originating from buyers in Europe scooping up whatever cheap stock they could find in the London market. Demand was focused on first growth Bordeaux and, as prices firmed, we began to wonder with anticipation what might be in store for September once all market participants were back at their desks: could a re-run of last year’s excellent (post referendum) third quarter perhaps be on the cards?
Well it did not take long to get the answer. After hitting a low against the Euro right at the end of August, sterling made a vicious recovery bouncing right back to pre-summer levels. With inflation data and central bank comments leading some to expect an interest rate rise sooner than previously thought, GBP/USD also soared to a 12-month high. GBP prices for younger vintages inevitably pulled back a little from the August highs. These wines tend to be the most sensitive to exchange rates as inventories in Bordeaux, priced in EUR of course, are heavily weighted towards younger vintages. However, although the wind was somewhat taken from the market’s sails, prices generally proved very resilient to this bout of GBP strength. After all, as we have observed before, there is no reason why stock snapped up cheaply from the UK market during GBP weakness should come flooding back if the currency recovers. A significant amount will have gone to private cellars in Europe, the US and Asia never to be resold. In other words, the reduction in prices, as seen by non-UK consumers, creates a genuine spike in global demand. The scale of the effect is meaningful because of the relatively large value of stocks offered for sale in the UK (and, importantly, on which the seller measures his cost in GBP).
September saw a series of international releases including high profile wines from Champagne, California, Chile, Italy and the Rhone. These distractions undoubtedly contributed to the slower pace of trading in the secondary market. However, as we enter the final quarter of 2017, the focus is once again returning to our core Bordeaux market with Asian buyers in particular upping the pace over the last couple of weeks. The wind might just be picking up again and it is still blowing in the right direction.