Asia develops a taste for fine wines

New money drives up prices for many vintages

On a side street in the Kangnam-gu business district of Seoul sits Podo Plaza, a three-story cubic structure devoted to wine - not rice wine, as one might expect, but the grapey variety from Bordeaux and Burgundy, Tuscany and the Napa Valley. Its retail space contains 3,000 labels, some of which are served in its downstairs wine bar; an upstairs space is devoted to wine and culinary education.

The existence in the South Korean capital of this monument to wine - created and financed by Hi Sang Lee, the chairman of the Korean Flour Mills Industrial Association - speaks volumes about the degree to which Asian collectors like Lee are investing in a passion that was relatively unknown to them a decade or two ago.
Fine wine, an asset once narrowly pursued by wealthy oenophiles in Europe and North America, is being appreciated - in all senses of the word - by a flood of new collectors from Asia, Russia and Eastern Europe. Armed with lists of critically rated wines, the newly wealthy are competing for the blue-chip products - first-growth Bordeaux and grand cru Burgundy.

Listen to Clive Coates, a wine writer and officially designated master of wine who lives in the Bordeaux region of France: "Fifty years ago, only the upper-class Brits bought fine wine. Now there are more and more rich people from all over the world coming out of the woodwork and competing for that wine."

Sotheby's, the auction house based in London, held its first U.S. wine sale of the autumn season last weekend. The event, which generated a whopping $2.4 million, exceeded Sotheby's expectations, with 60 percent of the lots selling above their high estimates.
Asian private collectors locked up 7 of the top 10 lots, including collections of Château Mouton Rothschild 1961 (eight bottles at $20,315), Domaine de la Romanée-Conti Assortment 1990 (12 bottles at $38,837) and La Tâche 1985 (nine bottles at $29,875). A European collector took the top lot, plunking down $161,325 for 12 bottles of Château Mouton Rothschild 1945.

During the same weekend as the Sotheby's event, the mayor of Paris, Bertrand Delanoë, auctioned nearly 5,000 bottles of top-rated wines collected by his predecessor, Jacques Chirac. The event raised more than $1.25 million and attracted collectors from around the world. Among them was Stephen Williams, managing director of Antique Wine in London. Williams, representing a corporate client, bowed out of a bidding war with a private collector from Beijing over a few bottles of 1989 Château Petrus; the Chinese bidder, Williams said, "clearly wanted them," even at €4,000, or $5,000, each.

Williams said that in the past two years his corporate clientele had grown threefold, largely on the ascent of big-spending hotel owners from Russia, China and Macao. Williams claims to have sold more wine this year to the Chinese region of Macao, a major Asian gambling hub, than to any single country.
"Wine is important relative to gaming, in that these hotels like their top clients to feel comfortable," Williams said. "If you are going to sit around a table with a couple of million dollars, you can drink as much Château Petrus as you want."

But there's only so much Petrus and Margaux produced in a year - and therein lies a conundrum, for producers and enthusiasts alike. "Château Margaux makes 40,000 cases per year and sells out every year," Williams said. "When a new market like China emerges, even with only 1 percent of its consumers buying wine, that can have a profound effect." Williams said Bordeaux merchants had begun reducing their allocations of top wines to traditional importers in the mature markets, part of the long-term aim to ensure wide distribution of their wines to emerging markets.

Serena Sutcliffe, director of international wine sales at Sotheby's and a master of wine as well, confirmed seeing "tremendous demand for the absolute top fine wines" coming from markets that "didn't exist a decade ago." As a result, Sutcliffe said, "there is actually a shortage of the world's very finest wines."

The good news is that collectors who already own a decent store of solid Bordeaux vintages have the potential for some real profit in the years ahead should they opt to resell some of that inventory. The bad news is that anyone looking to take a new position in first-growth Bordeaux or premium grand cru Burgundy - like Domaine de la Romanée-Conti, a current star on the auction circuit - is going to pay top prices.
For instance, anyone looking to get in on the futures market for the 2005 Bordeaux will do so at an unprecedented premium.
As the American wine writer James Laube noted in a recent column for The Wine Spectator, an industry magazine, the 2005 first-growth Bordeaux future market has been "scary" during the past year. Futures of Château Ausone and Le Pin, which in Laube's view are still "babies resting in barrels," are selling for $1,000 or more a bottle.
At those prices, Laube wrote, collectors and investors looking for a deal might be better off focusing on more mature vintages of top-tier Bordeaux. Laube may be right: according to the 22nd edition of VinFolio's Wine Price File, collectors were able to pick up a standard 750-milliliter bottle of 2000 Château Margaux for an average of $590 during the first half of this year.

While stellar Bordeaux vintages like 1996 and 2000 can be had for as much as half off the prices of their 2005 counterparts, they are hardly a steal. As Sutcliffe explained, the high pricing for the 2005 Bordeaux campaign is making previous Bordeaux vintages like 1996 and 2000 that much more expensive.

Antique Wine has experienced this phenomenon at first hand. A year ago, the company traded Chateau Petrus 1982 at £14,000, or $26,000, a case. Now, the same case is fetching £22,000. Chateau Petrus 1989 and 1990 were both around £10,000 a case, and now they're £18,000. That works out to 50 percent to 70 percent growth in value in a single year. For the wine collector or investor looking to unload some of his or her stores of Bordeaux, this is probably as good a time as any to take a profit.

Yet whereas in the past collectors could count on some of that prized inventory coming back into the secondary marketplace, this may not be the case in the future. "The phenomenon in Asia is that wine won't come back onto market," Williams said. "It will be consumed, which also means that prices will probably remain high."

For the die-hard wine investor looking to protect a portfolio, there aren't many options but to face facts and buy the top bottles, since they have the most proven track records and are produced in enough capacity to have a broad following. Neither Coates nor Sutcliffe, both of whom have tracked the industry for over 30 years, sees any correction in the offing.

That's not to say the market might not be about to reach a plateau. There could be periods when it will be static. Every time a new group of customers enters the market, Williams said, prices go up; this was the case with the Americans in the 1970s and the Japanese in the 1980s.

And there's no telling what will happen, he added, if and when the brand- conscious Chinese become "serious" wine consumers. A March 2006 report from the California Association of Winegrowers estimated that in 1989, China imported almost no wine from the United States. In 2005, U.S. wine exports to China totaled 2.3 million liters, or 608,000 gallons, at a value of $5.9 million.

But while the topmost portion of the market may seem out of reach, just below are some incredibly good values. Sutcliffe forecasts that 1998 Bordeaux will "have a real future" in the secondary market even though it is "currently stagnant." Likewise, she says, the 2001 Bordeaux and 2001 Burgundy represent strong buys, "if you can find them."
Williams is particularly bullish on Domaine de la Romanée-Conti, DeVogue, the 1978, 1986, 1990 and 1995 vintages of top Burgundies and Australia's Penfold Grange.

Coates also singled out a grand cru Burgundy, Domaine de Chevalier, as an underrated wine that he said cost a third of what Château Lynch-Bages currently commands yet drinks exceptionally well and has good cellar potential.

Premium wines from California, Italy and Spain also offer not only excellent values but some upside potential as well. The Wine Spectator, in its Nov. 15 issue, offers a list of the most actively traded Napa Valley cabernets sold at U.S. auction. The criterion for inclusion is that at least 1,000 bottles of any vintage were sold at auction in the past two years. The most dramatic performer at auction was Screaming Eagle Cabernet Sauvignon, a cult classic that has risen, on average, 871 percent in value since it was first released.
Though Williams called Screaming Eagle a "phenomenal value" for collectors, he does not recommend it for the investor, since it simply is not produced in enough quantity to guarantee that it will have longevity in the marketplace. Only 500 cases of Screaming Eagle are produced a year.

That said, at the Paris auction, Williams himself paid a record-breaking £5,000 apiece for two bottles of 1986 Domaine de la Romanée-Conti, a wine even more narrowly produced than Screaming Eagle, at 450 cases.
"Not sure where or how we will sell it," Williams said of his pricey purchase, "but due to the excellent provenance, coupled with the interesting history behind these bottles, I am sure they will find new homes."
Probably in Asia.