Lure of Safe Haven Investments grows with Euro Uncertainty, Chinese market malaise and an expected US interest rate rise

With monetary uncertainty in the key European and US markets and troubled Chinese equities having safe haven investments in your portfolio is key. The appeal of assets with inherent physical value are unquestionable – particularly more so when through a transparent acquisition rather than a future or financial vehicle.

Interestingly a recent article published by FT Advisor, points to current investor focus on precious metals, primarily gold, providing the potential for portfolio diversification in light of the impending interest rate rise in the US. Thomas Holl, portfolio manager of the BlackRock Commodities Income Investment Trust comments:

“The rationale for an allocation to gold remains strong, as its role as a hedge against financial market instability, currency weakness and the risk of inflation, continues to be valid. … Although the inflation environment is benign, the significant expansion of central bank balance sheets and increasing indebtedness of governments globally may, at some point, result in an increase in inflation.”

This revert to safe havens for wealth protection is instinctive and investors can access such investments in a number of ways, either in physical form or by investing in producers through funds and investment trusts.

The World Gold Council reports that overall investment demand for gold exchange-traded funds (ETFs) was up 4 per cent in the first quarter of this year with gold ETFs recording net inflows. The director of investment research at the Council, says: “While ETFs have experienced outflows since [in Q2]… there is far more interest in the asset class than there was in 2014, let alone 2013.”

This tactic of preserving wealth can equally be applied to fine wine, also proven to be an effective hedge against the negative effects of inflation, currency movements and more volatile financial markets. Wine has outperformed gold over the longer term. The rarity of a vintage with finite demand being further reduced once consumption commences means the natural supply versus demand dynamic of fine wine has ensured stable long term price growth. This is key when compared to gold’s prolific nature.

In one of Bordeaux’s key markets the need for a safe haven for investment is currently at an all time high. The CSI300 (an index of China’s biggest listed companies) fell by 16% in the eight trading days after the recent rate cut and has fallen 26 per cent in the month with $3.5trillion erased from China’s stockmarkets, the equivalent of more than the entire value of all listed companies in India. Chinese investors are evidently rattled, the volatility of their markets reflects the fact that retail investors represent 90% of daily turnover, the opposite of developed financial markets where institutions dominate. We may well see a returning appetite for the Big Bordeaux brands accelerated in the current uncertain conditions.

The Greek Drama rolls on and we monitor the uncertain fate of the Euro – one thing’s for sure – we have seen no corresponding movements in the fine wine values despite market movements not dissimilar to the waves lapping up and down the beaches of Greece right now.

Liv-ex reported this week on the fact that in June its Liv-ex 100 index, which measures the top traded 100 wines in the market, reported its first year on year increase since November 2013, up 3.4% on June 2014. Sixty-seven of the 100 wines increased in value, over the last 12 months led by Bordeaux wines of the recently rescored 2005 vintage. Increasing evidence of a market on the turn? For more information call us now on 0203 384 2262.