As is the case for most assets traded globally, demand for fine wine is driven in part by global exchange rates. Sterling, the currency in which the Liv-ex indices are denominated, faced a turbulent road in 2020 with major political, social, and economic events putting pressure on the currency.
Despite the myriad of challenges, the Liv-ex Fine Wine 50 was a beacon of stability throughout the year closing with a modest return of 3.6%, outperforming the FTSE and Hang Seng. However, volatility is revealed when the index is viewed through the lens of other currencies, as seen the graph below.
Over the course of the year wine prices drifted between -2.5% and 7.8% when viewed in either Dollars, Euros, Swiss Francs or Yen, but at the peak of the volatility in March, international buyers were able to take advantage of Sterling weakness to buy First Growths at compelling levels. And in doing so, supported the market.
However, a question now arises. As Sterling quietly strengthens post the Brexit free trade deal, will this buying momentum be maintained? Or put another way, does the recent market strength go beyond currency related matters?
While it is always worth keeping a close eye on exchange rates perhaps there are other factors to consider going forward – logistics, tariffs, unemployment levels, interest rates and China to name but a few.
