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Wall Street Journal
Article Date: Friday, Oct 17 2008. 1:04 AM IST

Money Matters
Banking on the bottle

Bankrupt banks, crashing stock markets -- it’s enough to drive people to the drink! And these days, some people find investing in fine wines seems like a smart thing to do.
 
Reported by: Taneesha Kulshrestha
New Delhi: Bankrupt banks, crashing stock markets, collapsing mutual funds, falling commodities — a combination enough to drive people to the drink!

With the global financial markets in turmoil, investors are on the lookout for alternative asset classes that may offer some safety. This is where investing in a bottle of wine may be a good idea and many Indians seem to feel the same way.

They are now approaching international wine brokers to invest in fine wines. Vincenzo Taglavia, CEO of a wine brokerage in London called Bordeaux Connoisseurs says high net worth Indians have invested in his wine funds, and that many brokerages from India too are in touch with him for future investments.

The number of wine aficionados has been on the increase in India over the past few years. Brindco, India’s biggest wine importer says that the number of serious wine collectors in its database is now 1500 – this number used to be miniscule just 4 years ago. “I know for a fact that the number of people investing in wines has increased,” says Aman Dhall, Brindco’s executive director.

Wines are less volatile say market experts. Their prices don’t tend to go up and down frequently, and this makes them somewhat insulated from the financial markets. Taglavia says they have steadily outperformed the stock markets in times of crash. Dhall agrees with Taglavia and says that the price of wines depends more on supply and demand. A chateau like Petrus makes say 10,000 bottles in a year. There are more millionaires than that in the world. “There are simply less fine wines than people who are willing to have them,” he says.

On average industry estimates say returns on wine have been between 7-12 % since the early 1980s. Some wines may give even higher returns. For instance, the 2005 vintage of chateau latour was released at 400 euros and is now trading at 1100 euros. Similarly, a bottle of Cristal may see a 200% appreciation on its 250-300 euro of price on release.
Which are the wines that people can invest in safely then? One can start with blue-chip Bordeaux chateaux, which represents about 90% of the fine wine market, or the top Burgundy labels.

Some are Cheval Blanc, Haut-Brion, Lafite-Rothschild, Latour, Margaux and Mouton-Rothschild. There are others as well. Dhall says that a well-balanced portfolio could include both old world and new world wines.

Wine Bottles

Like all investment class assets, wine investing does have its own challenges though and investors would do well to take note. For one, buying wines is like buying property. One has to go through an estate agent who can then sell wine on one’s behalf. Then there’s the issue of knowing who to buy from — fraudsters are rampant in the world of fine wine and many scams have been reported. Storage is another issue. If one is buying vintage wines that have been stored for 10 to 15 years then one needs to know how they had been stored to be sure of their quality. In addition, “one should know the estate,” says Dhall pointing out that one may be able to increase one’s fortunes manifold incase by betting on estates that will do good work going forward.

Industry experts say that wine investments can be used, as a hedge against inflation and the blue chips can always be counted on to rise. There is risk involved and like all investments, investment in wine too demands caution. But in times of financial turbulence, wines may be the safe haven that investors are looking for.