Chinese Wine Collectors Finance Purchases

As wealthy Chinese collectors and investors look for alternative investment opportunities they are finding Chinese banks willing to lend for purchases of select fine wines.  As these high net worth individuals leverage their purchasing power and secure purchases with collectible wine many questions can be asked, such as will the wine appreciate enough to cover the purchase price, storage and accumulated interest. 

Can we compare the US housing market bubble and collapse with easy financing and the expectation that homes would appreciate instead of depreciate to financing and purchasing of expensive wines?  And if a wine collection is repossessed will the bank be able to liquidate in an efficient and profitable manner.  Only time will tell. I believe there are many red flags about the strength of the Chinese economy, its national debt and its dual banking system of regulated and unregulated banks.

Bloomberg reports on Chinese banks looking to finance wine purchases.

Many affluent Chinese, worried about rising inflation, a roller-coaster stock market, and restrictions on real- estate investment, are looking to alternative assets. Wine, a status symbol for new millionaires, is a hot choice.

At one booth Doug Rumsam, managing director of Bordeaux Index’s Hong Kong office, says he has just spoken to two women from a Guangdong fund-management company interested in diversifying into wine. Peter Lunzer of U.K.- based Lunzer Wine Investments says he’s hiring a Mandarin speaker to entice mainland clients.

Price gains of top Bordeaux and Burgundy labels at auction help drive interest. They inspired Wing Lung Bank’s plan, which covers as much as 50 percent of the purchase value at a current interest rate of as much as 6.25 percent, just below the 6.29 percent yield for Italy’s five-year bond sale on Nov. 14. The bank gets the wine if you don’t pay.
Fine Wine Decline

Will prices rise enough during the next few years to cover interest, storage costs and a profit? No one seems concerned about possible price declines. The Liv-Ex Fine Wine 50 Index, which tracks prices of Bordeaux first growths, has slumped about 18 percent since June.

“The fate of wine investment is tied to changing tastes in China,” says Liv-Ex Director James Miles. Prices of brands like Lafite soared as they became must-haves for Chinese buyers, then dipped as mainland collectors embraced Burgundy label Domaine de la Romanee Conti. The company’s Fine Wine 500 index, which tracks a broader range of vintages, including Burgundies, rose 13.2 percent in the past year, though it’s slipped 6.1 percent in the three months ended October.

One problem for China’s investors, he says, has been difficulty in selling their wine. Two local ventures may help. One is the Hong Kong Wine Exchange, launched in October, a trading platform that allows member-collectors to buy and sell globally through the company’s network of wine storage partners.

Click HERE to read the full Bloomberg article.