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December 22, 2011

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Investing in top drops

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 ( 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

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.

The American says 90 percent of his clients are private collectors, people he knows from the various wine events he hosts.

He describes them as late 20s to early 40s who are starting a "passion." "They've bought their first Mercedes," he says, "they can afford a wine cabinet to store good wines. They want to get into something new."

He says serious collectors or investors purchase by the case because individual bottles are not worth as much as an unopened case.

He also recommends buying as early as possible.

"The sooner you know it's a great vintage the better," Isacs says. "That requires tasting out of the barrel."

En primeur buying, or purchasing wine before it is bottled, is the best chance to get a wine before it hits the retail market. Companies like WIC can help clients secure highly sought vintages through en primeur purchasing.

With production limited - most Bordeaux chateaux produce about 120,000 bottles a year although Chateau Petrus produces only 30,000 bottles and Chateau Le Pin even less - and supply dwindling as it is consumed, it's easy to see why investors may go gaga for wine investments.

According to Isacs, it is still safer and more conventional to invest in the "eight great Bordeaux." These are the five first growths - Chateau Lafite Rothschild, Chateau Latour, Chateau Margaux, Chateau Haut Brion and Chateau Mouton Rothschild - along with Chateau Petrus, Chateau Ausone and Chateau Cheval Blanc.

Isacs says sometimes the up and comers are better wines than the "great eight" but that they don't have the recognition yet, making them riskier investments.

Looking beyond Bordeaux and Burgundy, Isacs says Brunello di Montalcino from the Tuscany region of Italy, the "Super Tuscans" like Sassicaia and Tignanello and Barolo and Barberesco from the Piedmont Region of Italy are worth considering as investment wines.

He also says the cult wines coming out of California like Screaming Eagle and Harlan Estate and some top Australian wines may outperform Bordeaux vintages because starting prices are lower. Still, be aware that these vineyards do not have a long track record compared with Old World wines and therefore may be riskier investments.

As with equities, property, gold and other assets, there are risks involved.

Any downturn in the economy can have an adverse impact on fine wine prices. Prices dropped during the Asian financial crisis in 1997, the dotcom crash and the 2008 global financial crisis.

Isacs also says hoarding can be a problem. This occurs when one person holds a significant amount of any one wine. If the person decides to sell all at once, prices can drop.

There is also fake wine on the market in China. A December 5 report in Shanghai Daily said the sales volume of Chateau Lafite Rothschild on the mainland greatly outstrips the import volume.

Another factor to consider, especially with the wineries that don't have such long histories, is the power of Robert Parker. If he gives a poor score - he rates wines from 50 to 100 points - or re-scores a wine and gives a lower rating than he originally did, the price is likely to drop. Investment-grade wines generally have a minimum score of 95 points from Parker.

Even Yao Ming has jumped on the fine wines bandwagon, albeit as a winemaker. The former NBA all-star with the Houston Rockets has invested in a Californian winery that he named Yao Family Wines.

His first 5,000-case run is made from Cabernet Sauvignon grapes grown in the Napa Valley, a region known for producing excellent wines. Targeting the high end of the market, each bottle is priced at 1,775 yuan.

With enthusiasm for fine wine in China bubbling over like Champagne, it's little surprise that the wine critic Parker recently was quoted as saying: "The quantity of these great (Bordeaux) wines is finite and the demand for them will become at least 10 times greater."

Still, perhaps the best thing about buying into fine wines is that if the investment does go sour, at the very least you can throw one great party.

(Marc Tessier is a copy editor at Shanghai Daily.)

Investment tips

? Deal with reputable merchants.

? Ensure wines are stored properly to avoid damage.

? Purchase wine by the case.

? Buy as close to opening price as possible.

? Keep wines "in bond" to avoid duties.

? Don't invest for the short term.

? Buy insurance for all wines.

? Do some research, don't just blindly follow the crowd.


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