Investing in top drops(1)
CHINESE are pouring money into wine as many investors consider the world's best vintages from Bordeaux and Burgundy in France to be can't-miss investments. Marc Tessier uncorks the tale.
Wine means many things to many people. Here in Shanghai, it often means money.
Wealthy Chinese are seeking different ways to invest their cash to hedge against high inflation. Equities and property have been hot commodities, but domestic stock markets have stumbled along aimlessly for the better part of two years and tight restrictions on real estate purchases remain in place.
Now Chinese are pouring money into wine as many investors consider the world's best vintages from Bordeaux and Burgundy in France to be can't-miss investments.
China became the world's largest consumer of Bordeaux wines last year, importing about 33.5 million bottles costing US$475 million, according to the Bordeaux Wine Council.
Earlier this year, at least six wine estates in Bordeaux were sold to Chinese investors, The Globe and Mail reported in April.
The Shanghai International Wine Exchange (www.siwe.com.cn) opened officially in September. It aims to bring together producers and suppliers from Bordeaux and other wine regions with investors. It has already attracted more than 2,000 investors and sees a daily turnover of about 10 million yuan (US$1.5 million) on more than 100 listed wines, according to Wines-info.com.
China's first private equity fund for fine wines was also launched earlier this year. The Dinghong Fund plans to raise 200 million yuan by the end of this year and 1 billion yuan within five years.
A minimum investment of 1 million yuan is required and investors are locked in for five years. The fund anticipates annual returns of 15 percent.
It will primarily invest in wines from Bordeaux and Burgundy.
Industry insiders say that Chinese investors are drawn to big names like Chateau Lafite Rothschild and Chateau Petrus and wines that are rated highly by noted American critic Robert Parker.
They also say while there is money to be made, newcomers to the market need to be aware of the risks.
Wine Investment China, which opened in Shanghai in September, helps clients source wines from the world's main wine growing regions through a network of contacts.
Andrew Bassett, managing director of Wine Investment China, says the five first growth Bordeaux wines have been done to death, but that there are other great wines worth investing in, like those from the Barossa Valley in Australia such as Chris Ringland, Two Hands and Torbreck.
"We're looking for the next Lafites for our clients," Bassett says. "But we don't compromise on quality. We go to the vineyards, we meet the winemakers, we do our due diligence.
"The Australians, for example, have some incredible wines but they don't know how to sell it," he continues. "They expect everyone to come to the Barossa (Valley), but it doesn't work that way. You have to get out there and meet people and tell people what's so great about your product."
The UK native says they recommend their clients start with an initial investment of 250,000 yuan (US$39,300) to build a meaningful portfolio, but that they will consider smaller sums.
The general investment horizon is three to five years, depending on the wines in the portfolio. They expect annual returns of 12 to 15 percent.
Now with more than 50 clients, Bassett says WIC is essentially an advisory firm. The company makes money by charging clients an advisory fee on wine purchases.
WIC's clients can also get advice on bespoke wine collections, meaning you can purchase a wine and get customized labels to commemorate a special event such as a wedding, birth of a child or birthday.
Knowing that many Chinese investors are new to the world of wine, Bassett says they also offer wine appreciation classes and wine tasting events to help clients learn more about wine culture. WIC has three sommeliers who can answer questions for clients.
"We invite clients and potential clients here (the office is in an old villa on Huaihai Road) for dinner so they can try some good wines and have some nice food," Bassett says. "At the end of the day, you can't just sell, sell, sell all the time. You've got to back it up with service."
John Isacs, CEO of Enjoy Gourmet, which has offices in Shanghai and Taipei, is the author of Isacs Guide on wine (in both Chinese and English) and Shanghai Daily's wine columnist. His company also offers investment services to clients.
