At the risk of sounding like a stuck record, the market mood is sombre. It does, however, remain reasonably steady amidst a turbulent sea of macro factors.
Hong Kong is an important market for wine and the ongoing protests are a concern. The original cause of complaint, an extradition agreement between the Special Administrative Region and the Chinese mainland, has long since been retracted but the protests continue, becoming ever more violent. This is about democracy and freedom and the eyes of the world are watching. It is an uncomfortable position for China which cannot afford to handle the situation as perhaps it might in its own provinces but in the long term, it remains a very powerful parent. The economic effects are being felt; officially occupancy rates in Hong Kong hotels are currently running at about 20%, unofficially they are in single digits. A quick internet search found a room in the territory for US$9 a night, including breakfast!
As we know, Hong Kong, apart from having its own burgeoning wine scene, is currently the gateway to the wine market of China, legally or otherwise. We expect China will open new free ports in time, but the current troubles may just accelerate that process. We think this is a short term problem but in the meantime, trade from that corner of the world is quiet.
U.S./China trade negotiations and Brexit shenanigans continue, and emerging markets are threatened by contagion emanating from Argentina. Throw in the unrest in various parts of the Middle East and various other more localised scenarios, it’s a right old mess. And what does well when we’re in a right old mess – physical assets! Here is the Gold price performance so far this year against the WO 150 index.
We’re not saying there is any correlation, delayed or otherwise, between wine and gold but recent financial history (since the last global financial crisis) has made physical and alternative assets increasingly popular.
We live in an era of negative real interest rates, where buyers of roughly a third of the world’s outstanding bonds will lose money if held to maturity and where even high yielding equities with strong balance sheets are not performing – all very sobering! With all this going on, is it time to hit the bottle?
Within the wine world, my investment themes remain the same; the primary focus being on regional allocation, combined with scarcity and relative value plays on highly rated wines only. Sell the Bordeaux juggernauts from the last decade.
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