China nouveau riche get taste of fine wine investing
Well-heeled Chinese can now invest in fine wines via the mainland's first "wine futures", but the vintages on offer are from aspiring local vineyards rather than rare Bordeaux labels.
Industrial and Commercial Bank of China and CITIC Bank, two of the country's biggest, have recently launched separate investment trusts aiming to raise about 100 million yuan ($15 million) each from the sale of wine from the coastal Shandong province "en primeur", or while it is still in the barrel.
The system, usually reserved for hard-to-find wines from famed regions such as Bordeaux or the Rhone Valley, tickled the palate of Chinese bankers seeking to tap two trends in China's fast-growing economy: an interest in fine wines among increasingly affluent consumers, and rising ambitions among the country's wineries to join the ranks of fine wine producers.
The futures also offer a steadier alternative to the tumbling stock market, analysts said.
Wine futures are already offered by merchants and investment funds through private banks in Hong Kong, but these tend to be for internationally renowned labels.
"Chinese consumers are richer and have become more picky about the quality of wine, so the value in good wine will keep rising," said Wang Yiguo, food industry analyst at China Jianyin Investment Securities.
"Luxury wine, like art, is a good investment, especially when the financial markets are in turmoil."
The trusts allow investors to purchase wines produced by Chateau Junding, owned by China's biggest grain trader, COFCO, from grapes harvested in 2006.
They will have the option of taking delivery of the wine, at a price of 500 to 667 yuan ($73-98) per bottle, in three shipments from October to next June.
For those still suffering a hangover from the Shanghai stock index's 50 percent drop since last October, the trusts also offer payouts with a soothing 8 percent fixed annual return, exceeding China's current inflation rate.
The payments would be made in 18 months' time.
"COFCO is guaranteeing fixed returns because there's not a secondary market in China and Chinese wine brands are not as trust-worthy as foreign brands," said Cai Ying, manager of SDIC Trust Co, which designed the investment product.
WINE AND AFFLUENCE
The Premium Fine Wine Index, which reflects investment in Red Bordeaux and on wines from other regions in France, generated a 75.52 percent return between 2001 and 2006, outpacing gains in major stock indexes, according to wine brokerage Premium Liquid Assets.
China is one of the world's biggest importers of wine and its leading local wine makers, which dominate the domestic wine market by leveraging extensive sales networks, are rushing to build their own luxury brands.
But COFCO's Chateau Junding, opened just last year to make and sell premium wine, has far to go to establish a reputation.
"Bordeaux and Burgundy are already well-recognized wine regions, but it takes time to see whether places like Shandong are suitable for producing good wines," said Matthew Gong, marketing manager of ASC Fine Wines, China's biggest importer.
COFCO rivals Yantai Changyu Pioneer Wine Co and Dynasty Fine Wines Group have also announced plans to expand in the higher-margin luxury segment.
COFCO is offering investors free trips to Chateau Junding for on-site investment research, although Jianyin's Wang said it would take a long time for China's wine investors to mature.
"It requires a lot of knowledge and expertise to evaluate fine wine, whose quality is affected by numerous factors such as the variety of the grapes, climate conditions and the storage environment," he said. "Not many investors in China understand the risks involved."