Energy, Inflation, Supply Chains and Fine Wine

August’s record inflation level could see a rising trajectory this Autumn as increasing issues with supply chains hit home and now energy companies are going bust. Global financial markets are looking challenged by weaker economic numbers from Asia and the on-going persistence of the Delta variant. Meanwhile, by contrast, fine wine continues to offer a safe-haven for investors.

Challenged supply chains, first affected by driver shortages (Covid and Brexit), are now further complicated by a crisis in the energy market. Surging European energy prices have seen a number of smaller UK companies close in the last couple of months, with the energy regulator taking urgent steps to protect consumers by appointing E.ON and British Gas as interim suppliers whilst the matter is resolved.

With CO2 a key by-product of high energy consuming industry such as fertiliser manufacture, further company closures, or reduction in production is affecting food supply chains from farm to fork. What is the impact for investors?

Investor challenges in Autumn 2021

We are learning more about how inter-related sectors and supply chains have become, and how reliant we all are on the provision of energy to fuel modern living and all of the convenience we have become to accustomed to. Companies are established to deliver products and services, capitalising on market opportunities. But when the fundamentals of those markets change, and quickly, companies fail and investors and consumers take the hit.

All of the key financial markets have had a challenging start to this week. The FTSE 100 was down 1.2% this morning, falling below 7,000 for the first time since July 2021. On the 15th September, the ONS reported a significant 3% rise in inflation (CPI) in the 12 months to August 2021. This rose from the 2.1% July measure and the 0.9% increase is the largest recorded in the 12-month inflation rate series commenced in January 2006. There is recognition that the base point of August 2020 was influenced by the Government’s Eat to Help Out scheme, providing discounted prices across the hospitality sector and the lower VAT rate applied in the same space, but consumers are feeling the pinch in September 2021.

Politically, even allied states got hot under the collar last week with France drawing up the diplomatic drawbridge on the USA, UK and Australia over lost submarine spend.

Safe-haven performance

Investors are looking at a highly complicated environment with significant challenges to factor into decisions for growth and to protect wealth with inflation on the rise. A constant throughout this period and the Covid-19 era to date, has been the stable performance of fine wine. Liv-ex reported a 16th month of consecutive growth for its key index, the Liv-ex 100, to the end of August 2021, a 14.7% uplift over the last year.

The blue-chip Liv-ex Fine Wine 50, which monitors the price performance of the most recent ten physical vintages of the five Bordeaux First Growths (Haut Brion, Lafite Rothschild, Latour, Margaux and Mouton Rothschild), reported a 2.7% rise in August 2021, ahead of the S&P500’s 2.5%.

As investors seek the means to diversify and de-risk their portfolios, fine wine is demonstrating its value in the market today. Another important consideration is the Tax treatment of fine wine by HMRC. Generally, profits made from fine wine sales do not normally attract Capital Gains Tax (CGT), subject to personal circumstances and advice from a specialist advisor should be sought. With the expectation that CGT is on the Treasury’s agenda for change to rake back Covid spend, assets that do not factor is an important consideration.

For more information, see our Guide to Investing in Fine Wine and speak to a member of our expert team on 0203 384 2262.