The Battle of the Bottle

2016-08-02

Will it be Bordeaux or Burgundy where the smart money goes in 2017?

It is well known that over the last few years the wines of Burgundy have substantially out-performed their Bordeaux cousins. The chart below vividly represents this:

Since the start of 2012 the Blue Chip wines of Burgundy (purple) have risen consistently year on year to now sit around 50% up in 4.5 years, whilst First Growth Bordeaux (green) has fallen nearly 20% in the same period . An astonishing disparity accounted for by the Bordeaux bubble of 2009-2012 caused by the market discontinuity of early Chinese demand and trade speculation that accompanied it. Even the Bordeaux Medoc Classed Growths (light blue), that withstood the crash in Bordeaux prices far better in general than First Growth royalty, only managed an increase in value of 15% since the start 2012, but this is entirely down to the last 15 months.

So, what do we think of the potential of these three vital segments of the market in terms of future performance? Will Burgundy continue to rise regardless, or will Bordeaux be resuscitated?

This next chart might help put things in context. It is of the same three indices above, but within a timeframe of the last 9 months only:

All indices are over 10% up over this 9 month period. Excellent news. You should also notice the similarities in their trajectories, showing growth in both regions. Again, good news. You should then discern that it is the two Bordeaux indices that are leading the way. To be precise, The Bordeaux Medoc Classed Growth index is up 16.6%, First Growths are up 13.5% and Blue Chip Burgundies are up 11.3%.

Now, of course, these time-frames are arbitrarily chosen, and it could be possible to draw other conclusions by choosing different representations of the same data. But that misses the point. We do believe that the improvement in fortunes of Bordeaux is likely to be a major theme of the next 18 months, and it is reasonable to suggest that increased interest, and resurgent sentiment, in this pre-eminent region may mean Bordeaux prices rising more steeply than Burgundy prices.

The Burgundy market is unlikely to fall prey to the same rapid boom and bust cycles that affected Bordeaux between 1991 and 2014, but we think it is a fair and proportionate response when looking at the prices and bid/offer spreads available to think that the very top of the Blue Chip Burgundy market may have run its course for now, and that to risk increased exposure to Burgundy might not be the best idea if short-term return on investment is your primary motivator.

Yet it's notoriously difficult to call the top of any market, and this viewpoint needs to be set against the severely reduced yields in 2016 in certain parts of the Cote D'Or that will push up 2016 release prices in 18 months' time, and may inflate the very good 2015 releases next January. What effect this has on back vintages remains to be seen.