Hedge expected Brexit currency volatility with fine wine

As the Brexit negotiations extend to ‘the wire’ financial markets are responding and the FT reported today that “Measures of expected volatility in Sterling over the next month remain elevated, signaling heightened market expectations for tumult in the pound (£) as 2020 nears its end.”

Early trading on Monday 14th December saw the ‘£‘ rise 1.4% against the US dollar to its highest point since late October 2020, up to US$1.3405, off the back of the news that Boris and Ursula  have agreed “to go the extra mile”. Perhaps more pertinently, Sterling also climbed 1% on the Euro, a partial recovery against last week’s 1.6% fall.

Currency analysts observed this morning’s development as being in support of the possibility of a last-minute trade deal being achieved, but the risks remain high that efforts to seal a deal could still fail, posing significant downside risks to Sterling.

Financial market specialists expect increasing currency volatility as we approach the ultimate Brexit deadline, we are out – with or without a deal – on the 31st December. Barclays analysts comment that negative risks for the pound would persist until negotiations reach an agreement. In terms of the impact on £ / $ – Barclays expect that with a deal Sterling could trade above US$1.35, but in the case of no deal it could drop to $1.25. The Bank of England is due to meet on 17th December and it will be considering developments since boosting its bond buying strategy by £150billion at its November meeting.

Investors considering their options now to hedge against expected currency volatility and exposure to negative movements in Sterling may look to alternative assets such as fine wine with a proven track record of no direct correlation to financial markets as an important option to protect capital.

The Liv-ex 100 has seen 4.7% growth trend in 2020 to 30th November and top performing investment wines have delivered double-digit growth through a period of unprecedented economic uncertainty. Champagne, often referred to as the most stable fine wine asset and important for diversifying a fine wine portfolio, produced some of the top performing wines in November. Salon, Le Mesnil 2002 grew 9.8% in price in the month and the table below ranks the other top performers including Dom Perignon vintages and Pol Roger, Sir Winston Churchill 2006.

Liv-ex Top Market Movers, November 2020

Champagne wine Vintage October £ November £ Change %
Salon, Le Mesnil 2002 £5,460 £5,950 9.8%
Moet & Chandon, Dom Perignon Rose 2003 £1,850 £2,000 9.7%
Pol Roger, Sir Winston Churchill 2006 £1,244 £1,330 7.2%
Moet & Chandon, Dom Perignon 2002 £1,500 £1,583 6.7%
Taittinger, Comtes de Champagne 2004 £1,162 £1,225 6.1%

Source: Liv-ex December 2020 Trade Report

Adding investment-grade Champagne to a portfolio delivers stable growth, diversification potential against the current currency volatility and festive cheer in December 2020. You may also want a great toast for 2021 (Deal or No Deal) – vintage bubbles the obvious choice! For more information on great Champagnes for fine wine investors speak to a member of our team on 0203 384 2262.