Tue, 08/01/2013 - 12:21
The Wine Investment Fund’s (TWIF) forecast for 2013 is that the main wine index, the Liv-ex 100, will finish the year 14 per cent above its 2012 year-end level.
The Liv-ex 100 fell by nine per cent last year as institutional selling led to a resumption of the bear market seen in the second half of 2011.
The market was also not helped by a dismal en primeur season, which led to some disillusionment with Bordeaux, and, although there was continued demand from China, this was cancelled out by a faltering Japanese economy which weakened demand from this important fine wine consuming market.
Looking forward, however, conditions appear much brighter. First, the price falls in 2012 all took place in the first half of the year; the second six months saw a return to stability and, towards the end of the year, some signs of a recovery. Second, the weak market has seen prices drop to levels well below trend, potentially allowing for a sharp recovery. Third, institutional sales which affected the market throughout the whole of 2012 have begun to fall away.
The risk profile of the market also looks rather different to that of previous years, with TWIF’s worst-case scenario being a fall of only five per cent, whereas an increase of 25 per cent is well within the bounds of possibilities.
TWIF’s central forecast for the change in wine prices in 2013, as measured by the main index, the Liv-ex 100, is +14 per cent. It believes that the return of confidence towards the end of 2012 heralded the start of a recovery in wine prices and that this will be maintained throughout 2013. TWIF does not rule out a much faster recovery – such as was seen after the 2008 bear market – but believe that this is less likely.
Its “fan chart” – in the format used by the Bank of England to forecast inflation – for 2013 suggests the following probabilities of various different returns on the Liv-ex 100 index. It believes there is:
• A 50 per cent chance of growth in 2013 between eight per cent and 20 per cent;
• A 35 per cent chance of growth between one per cent and eight per cent or between 20 per cent and 28 per cent;
• A 14 per cent chance of growth between -5 per cent and +1 per cent or +28 per cent and +35 per cent; and
• A very remote chance (one per cent) of growth being either below -5 per cent or above +35 per cent.
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