China’s Capital Controls Are Hitting Wine Lovers Where It Hurts
Investors seeking way around curbs are buying up fine wine
(Bloomberg) -- Wine snobs beware -- China’s crusade against capital outflows and yuan weakness are fueling a price bump in your tipple of choice.
Investors are hunting down those sought-after bottles of Grange to Lafite as they scramble to turn cash into assets amid Beijing’s curbs on capital leaving the country, and after the yuan capped its steepest annual decline versus the dollar in more than 20 years, according to Cult Wines Ltd., a U.K.-based wine investment company.
“A lot of people in China suddenly have a different focus,” Tom Gearing, managing director at Cult Wines, which has £40 million ($50 million) of funds under administration, said in an interview. “They are now asking us questions like, ‘is it a good offshore investment?’ ‘is it a good way to put money into a physical, tangible asset?’ ‘is it linked to the yuan?’ and ‘is it correlated to financial markets?”’
Increased Chinese demand has seen prices for the world’s most prized wines -- as measured by the Liv-ex 100 Fine Wine Index -- rise to a more than five-year high, racking up gains that would be the envy of any stock or currency investor wary of Donald Trump’s protectionist policy or upcoming European elections this year. A developing taste for wine has seen Hong Kong become the world’s second-biggest source of wine buyers after the U.K., accounting for 20 percent of sales, according to Cult Wines, up from 12 percent in 2014.
Chinese wine drinkers are once again taking advantage of a buyer-friendly time in the market, repeating behavior last seen back in 2008, when Asian buying helped drive wine prices to record highs. Mainland buyers snapped up mature wine last year after the British referendum result sent the pound plummeting, according to Guy Ruston, Asia-Pacific managing director at Bordeaux Index Fine Wine & Spirits Merchant in Hong Kong.
“Consumption and lifestyle remain the key drivers of demand for fine wine in China,” Ruston said. “But certainly buying as a vehicle for investment as the market matures and develops further will become an important motive for buying.”
Chinese tastes are broadening beyond their traditional love for Bordeaux, with demand increasing for bottles from the Burgundy region, in central-eastern France, said Adam Bilbey, the Hong Kong-based head of Sotheby’s Wine, Asia.
“While a lot of people still speculate in wine for profits, we actually see more and more high-end clients within China buying wine for drinking,” he said. “So if we see wine is ending up with the end consumers who are drinking the wines, it makes for a real and healthy market.”
--With assistance from Garfield Reynolds To contact the reporter on this story: Narae Kim in Hong Kong at nkim132@bloomberg.net. To contact the editor responsible for this story: Christopher Anstey at canstey@bloomberg.net.