Fine Wine Outlook for 2024
The Fine Wine Outlook for 2024
Following the fine wine market correction in 2023, investors and collectors should approach 2024 with cautious optimism. In this report we will look at the macro and wine market specific factors that will influence the value fine wine into 2024.
As we saw in 2023 the UK interest rate has an inverse correlation with the value of fine wine. With UK CPI inflation at 4% as of January 2024, markets are pricing in a 50% chance of a first rate cut in June and fully pricing in a first-rate cut be August. The governor of the Bank of England, Andrew Bailey, will be looking for a cooling in wage growth before acting. The UK is expected to make four rate cuts in 2024, dropping the base rate from 5.25% currently to 4.25%. A lower interest rate will stimulate the UK economy and increase the risk premium of fine wine attracting investors back to the market.
As sterling is the base currency for the fine wine secondary market, non-UK buyers and investors are negatively affected by a strong pound. The speed at which global central banks cut their base interest rates relative to the UK rate will be the main determinant of exchange rate changes throughout 2024. We will also be keeping a close eye on the UK budget as sizeable cuts to income tax will add further impetus for the Bank of England to keep interest rates on hold a little longer.
As we await the 2023 HNWI index update from CapGemini in June, we can see the three fine wine indices performance tracked that of Global HNWI index, particularly in recent years. Â With a reduction in the 2023 wealth index highly expected particularly in sterling terms, future outlook remains optimistic with UBS wealth management expecting global wealth to rise by 38% over the next five years, reaching USD 629 trillion by 2027. UBS estimate number of millionaires to reach 86 million (59.4m start of 2023) while the number of ultra-high-net-worth individuals (net worth >$50m) is likely to rise to 372,000 individuals (243,060 start of 2023).
The demand for fine wine is strongest among wealthier demographics who have the financial means to indulge in luxury goods and experiences. The midterm global wealth outlook is set to drive future fine wine prices.
Outside of macro specific factors, the upcoming primary market releases from campaigns such En Primeur and La Place can help stimulate the fine wine market. In recent years there have been examples of release pricing being at or above relative quality back vintages confusing both collectors and investors alike. Early indications are that the Bordeaux En Primeur 2023 campaign which commences at the end of May will be priced below that of the previous three years. More attractive release pricing will improve market sentiment and attract both investors and collectors back to a viable futures system.
Looking at the technical analysis of the Liv-Ex 1000 (burgundy line), we can see that since July 2023 the index has tracked the lower Bollinger band (blue line) and the width of the Bollinger bands has widened in recent months. This would suggest the fine wine market will trend lower in the short term however looking at the relative strength index (purple line), the value of 29.9 would suggest the market is now over sold and presents an attractive buying opportunity.
Following our market report in November last year, our stance at Cru has remained unchanged. The long-term macro and micro market drivers remain positive and the current market conditions provide a buying opportunity for investors. We encourage investors to allocate capital periodically as to take advantage of the lower pricing while reducing market timing risk. In corrective markets we focus on value investments, wines with very strong fundamentals (brand, quality and supply), which are also trading at a good discount from their previous high price relative to the market.
Matthew Small
Following a career in Investment Banking, Matt is fascinated by tracking and understanding the analytics of the fine wine market. He works with our investor clients, helping them to build robust, diversified portfolios with long-term earnings potential.
