2002 Investment Update
May 12 2012
Was 2002 the weakest vintage in a decade of strong performers? It certainly has to be held up alongside 2007 and perhaps 2004 as a contender for the title. But a funny thing has happened to the fine wine market in recent years, and some of our classic investment theories need updating.
Adam Green of Roberson Wines says, 'The concept of widespread investment in wine has almost inverted market dynamics. Previously you saw very low rates of increase initially, but prices rose steadily over time. The problem now is that increases, particularly for stellar vintages such as 2009, tend to happen quickly, which can’t be sustained. Anyone who is buying to resell has to believe that people will eventually pull the cork, and so create the scarcity factor that is needed for long-term sustainable growth. It means those stellar years - 2005, 2009, 2010 - which should be no-brainers for investment, have become more problematic.’
'A benefit for vintages such as 2002 is that they are drunk. The on-trade market still has a strong demand for wines that they can sell between £200 and £500 a bottle – and that is where the 2002 fits in, especially the classic Super Seconds. Continued drinking by the consumer means wines can go up in value, because they are not all being held in the cellars of a wine fund. If there is no consumption imperative, that is a risk for investors, no matter how good the wines.'
Looking at the specifics of 2002, you see some classic names emerging as the best investments. Petrus was released in the UK at £3900 a case, and now sells for £14,000, a rise of 259%. Lafite has moved from £750 per case to £6300 (even with recent price drops), giving a 740% return, and Lynch Bages, a very reasonable £220 per case at the time is now trading at £740, a rise of 236%.
These returns, of course, assume you bought early. Where the effect of China and other emerging markets has been visible in recent years has been in the rise in price of ‘drinking’ vintages, so you may end up paying high prices for wines that won’t go the distance. 2002 fares better here than, for example, the 2007s. Back in 2002, America was the major market for investment-grade Bordeaux. The dot com crash had taken out a large swathe of investors, the Iraq war had soured relations between France and America, and Robert Parker didn't even make it to Bordeaux for the en primeur tastings. The Bordelais had little choice but to price reasonably. In contrast, by 2007, they had enjoyed two years of high prices following 2005, and the majority of chateaux stubbornly refused to listen to market signals demanding price drops. But quality-wise, although not homogenous, 2002 offered more potential than 2007.
Joe Marchant of Bordeaux Index, explains, 'With the US uninterested and prices not sufficiently attractive to pique the attention of Europeans, even the top releases barely created a ripple. In contrast to 2001, demand from drinkers remained soft for the next few years. That said, prices were not altogether moribund, with a broad selection of top crus having appreciated a shade over 10% by April 2006.'
At this point, the market changed. 'With the developed economies having rediscovered their mojos, the 2005s benefitted from hype at fever pitch, and both prices and demand were effervescent. Low interest rates and low risk aversion spurred a wave of new investors to pounce on discrepancies between en-primeur prices and older vintages. In common with 2001s and 2004s, the 2002s performed strongly.'
Price rises continued with the arrival of Hong Kong and China – sustaining the growths of 2002 prices for a while, with surges for the First Growths in particular to prices unimaginable only a few years previously.
As is now clear, this was not to last, and as we approach the 10-year window - when corks should begin to be popped on a large scale, and traditionally prices should be inching upwards – 2002 is instead looking precarious at the top end, with bloated prices brought about by interest from emerging markets most likely still with some way to fall.
Lower down the scale, however, the 2002s still offer some very interesting opportunities.
‘The smaller vintages are the ones where you make money,’ says Yann Schyler of Bordeaux negociants Schröder & Schÿler. ‘Buy them discreetly, hold on to them, and relax. The margins are there to be made. And you’ve risked so much less in the first place.’