Prices of the most-traded wines and Chinese stocks have moved mostly in tandem the past year, a path that has left investors worse off than those who bet on gold or U.S. equities.
The CHART OF THE DAY compares the Liv-ex 100 Fine Wine Index, compiled monthly, with daily moves of gold, the Shanghai Composite Index and the Standard & Poor’s 500 Index normalized from April 18, 2011, when the Chinese stock measure reached its high for the year. Gold and the U.S. benchmark index rose 5 percent and 2 percent through July 12, respectively, compared with losses of 29 percent for China stocks in the period and 26 percent for wine through June, data compiled by Bloomberg show.
In the first half of last year “you had a lot of cheap money in China, and that was the asset-grab phase,” said Robert Sleigh, senior director and head of wine for Asia at Sotheby’s in Hong Kong. “The tightening of liquidity in mainland China meant people had less disposable income, and that was a large part of what put the brakes on.”
The Shanghai Composite peaked in April 2011 as the government raised borrowing costs to cool an economy fueled by 4 trillion yuan ($627 billion) of stimulus. Stock transactions slumped as money supply tightened, with the 30-day average trading value falling to a three-year low in January. Two interest-rate cuts since June 8 have failed to boost the equity index, which is near its lowest level since March 2009.
The Liv-ex 100 represents price movements of 100 of the most-sought-after wines for which there is an active secondary market, according to Liv-ex’s website. The gauge, which rallied to a record high in June 2011 on the strength of Chinese demand for French red wines, is heavily weighted by the priciest Bordeaux such as Chateau Lafite and Chateau Haut Brion.
“If you do a risk-adjusted liquidity assessment of gold compared to small-cap Shanghai stocks and fine wine, it has the best tradable liquidity,” said Hao Hong, chief China strategist at Bocom International Holdings Co. Ltd. “Wine is illiquid, and look at the volatility of the Shanghai market where trading volume on some small- and medium-cap stocks is almost zero.”