High-end customers now have a less volatile option to add to their diversified portfolios with the launch of the mainland's first domestic wine investment trusts
Mainland buyers can now invest in locally produced fine wines. The country's first domestic wine investment trusts are offering 2006 vintages from the fledgling Chateau Junding vineyard in the Nava Valley in Shandong province on the country's eastern seaboard.
The trusts, launched in July by two of China's largest banks, the Industrial and Commercial Bank of China (ICBC) and Citic Bank, are in the form of a 'Subscribing and Collecting + Investing and Financing Trust' programme, a new onshore investment channel designed for private banking and high-net-worth customers in China.
The banks aimed to raise close to 100 million yuan (HK$114.2 million) each through the trusts. According to the ICBC's financial market department, its trust, launched on July10, 2008, was more than twice oversubscribed. The Citic Bank trust, launched a day later, raised 90.5 million yuan.
ICBC's trust is a partnership with China Foods subsidiary Cofco Wines & Spirits and Zhonghai Trust, a Shanghai-based company that is majority owned by CNOOC. Cofco owns Chateau Junding, which is producing the wines for the trusts, and China Foods is the company behind China's popular Great Wall wines.
All proceeds from the trusts will be invested in the results of Chateau Junding's 2006 crop. Customers are investing in en primeur wine (buying wine as a future before it is bottled), with each barrel containing 300 bottles or 225 litres of wine. Each investor is limited to buying a maximum of two barrels of wine at a price of 100,000 yuan per barrel.
The wines are due to make their debut in three phases in October, March and June. After 18 months, investors can choose to receive their 8per cent annual interest in cash or the equivalent in cases of red wine with each bottle priced at between 500 and 700 yuan. If the wine trust fails to reach its promised 8 per cent return, investors can sell the wines back to the vineyard at an 8 per cent premium.
Some wine industry experts believe that this type of futures investment offers a more stable alternative to the volatile and relatively unfavourable stock market environment in China. Senior managers at Chateau Junding, the banks and other venture partners are convinced that this en primeur premier wine will attract high-end consumers to invest because of the expected stable returns and special cultural connotations.
China is one of the world's biggest importers of wine, and its local winemakers are rushing to build their own luxury brands. Cofco rivals Yantai Changyu Pioneer Wine and Dynasty Fine Wines Group have also announced plans to expand in the higher-margin luxury segment of wine-growing.
En primeur wine is sought after by many wine investors for its investment potential. For example, the wines in the 2000 vintage from Chateau Margaux and Chateau Lafite, which rank among the top five French Bordeaux chateaux, were priced at US$300 per bottle when sold in 2001 as en primeur. Today their market value has risen to US$900 per bottle.
Furthermore, wine industry statistics show that in the past 20 years, fine wine has outperformed several equity and fixed income indices including the FTSE100 Index. The Premium Fine Wine Index, which reflects investment in red Bordeaux and on wines from other regions in France, generated a 75.52 per cent return between 2001 and 2006, outpacing gains in major stock indexes, according to wine brokerage Premium Liquid Assets.
Whether the wines from Chateau Junding will reach these dizzy heights is yet to be seen. The vineyard opened to make and sell its premium wines just one year ago. And while China Foods' Great Wall wine has ranked first in China in annual sales volume, overall market share and export amount for several years, this is its first venture into the premium segment of winemaking.
The same 2006 vintage en primeur wines from Chateau Junding are at the centre of Citic Bank's wine investment trust, which is a partnership with SDIC Trust and Cofco. Similar to the ICBC wine trust, Citic is targeting its high-end customers in China.
Yang Xiao, Citic Bank's vice-general manager of business announced that the subscribed en primeur wine of Cofco Chateau Junding includes three types: Oriental Red, Glory Red and Santa Grace Red, with respective prices of 100,000, 150,000 and 200,000 yuan per barrel, an 18-month investment period and a guaranteed annual return of 8 per cent.
'Cofco provides the investment guarantee ... it is confidently expected that this highly attractive investment package will become popular with the high-end target group as soon as it goes onto the market,' Mr Yang says.
This foray into the wine futures sector in China, already a well-established avenue for wine-appreciating investors in Hong Kong and overseas markets, will serve to widen the business of banks and trust funds, enrich financial planning products, inject variety into the commercial activities of wine enterprises, and form the foundation for innovative co-operation between wine producers, banks and trust funds, according to information from Citic Bank.
For long-term investors, a well-chosen and balanced wine portfolio should provide returns of 10 to 12 per cent per annum. Less volatile than stocks and shares, it is potentially a less risky investment and an alternative in a diversified portfolio. However, some might argue that investing in wines from a newly established vineyard in a domestic market that does not yet have an international reputation for producing premium wines consistently is an unsafe bet.