The image of a wine cellar packed full of dusty bottles – the rewards of a lifetime of collecting – is fading as wine becomes an increasingly popular investment choice. Wine investment has traditionally been the preserve of the super-wealthy, but special investment funds, mostly specialising in the Bordeaux wineries of Lafite [Rothschild], Latour, Chateau Margaux, Mouton [Rothschild], Haut-Brion, Cheval Blanc, Ausone, Pétrus and Chateau d’Yquem have brought wine to an increasing number of investors, particularly in China.

Benjamin Curtis, of Premium Liquid Assets, a Singapore-based investment fund, says that wine is attractive because of its high capital preservation. Historically, he says, a good vintage of the top wines from Bordeaux shows positive price appreciation, with the best vintages of first growth wine (a Bordeaux wine classification system) doubling in price in only three to five years.

Premium Liquid Assets’ Fund, whose business has more than doubled in the past five years, deals with wine primarily as a commodity, Curtis explains, “Which is a bit sad for the collector. Some people would say wine is for drinking, which is fine. We do have collectors as well, high-end collectors who deal with the labels we’re dealing with, using the profit that they’ve made, effectively, to be able to drink the finest wines for free.” However, it is the hard-nosed investor – unlikely to ever see the case of wine that they have bought – who is driving prices through the roof.

The demand from China has had a positive effect on the market, with extreme cases – Curtis cites a Chateau Lafite 2008 – increasing in price by an astounding 720%. Wine auction sales in the region have continued to rise, he adds, with some figures now showing Hong Kong taking over London and New York. The collectors market is booming, with Sotheby’s Hong Kong October 2010 wine sales proving especially profitable for the auction house. Prices for Chateau Lafite smashed 25 year-old records, with three bottles of 1869 vintage selling for US$234,000 each, and cases of recent vintages of 2009 Lafite going for US$69,000 each.

Wine connoisseur Andy Drake, who is also Global Online Head at Synovate, says that China’s influence in the market is fuelling unprecedented demand. “China is driving the trend,” he says. “It is a perfect storm of continued economic growth, increasing numbers of wealthy individuals and a growing taste for wine.”

He cites a recent article that states China is due to overtake Germany as the largest volume importer of Bordeaux wine. Up to October 2010, Drake says, China imported €333m of Bordeaux wine, a figure 50% greater than that of the United Kingdom. “The change in the last five years has been the demand from Asia generally, which has made selective wines a very wise investment,” he says.

China’s increasing interest in wine, according to Drake, has led COFCO, the largest oils and food importer and exporter in China, and a leading food manufacturer, to purchase a renowned vineyard, the Chateau de Viaud in Pomerol.

One of the major trends this year has been for Chateau Lafite, says Curtis. “The demand recently has been for Lafite, Lafite, Lafite. Clients are buying larger allocations than previous years. Some buy for investment and some are following the buy two, drink one for free rule.”

Synovate’s Andy Drake concurs. “There are certain labels such as Chateau Lafite and Chateau Latour that at corporate dinners are the brands that ensure ‘face’ is given,” he says. “So I think there is a premium within a premium.”

The trend indicates a relatively small number of consumers who have the highest standards, want the most well-known brands and, in the case of wine, ultimately the most expensive. This pattern is a proxy for wealth generation in China and has been a bit of a boon, particularly for Bordeaux, in an otherwise tough market. Looking ahead, Drake thinks it is reasonable that wine consumption will increase, alongside the number of high net worth individuals in China. “The outlook is good but I suppose the unanswered question is where the next tier of Chinese consumers will look. My instinct is high end Burgundy wines.”

For would-be wine investors, Curtis offers some advice. “A nice, balanced portfolio is always a good place to start, although not always the most affordable since, in 2010, the wine prices were a lot higher than they were previously. The top five labels – Lafite, a Latour, Mouton, Margot and an Obrion - would set you back around US$85,000 to get one case of each. That would be spread more towards the Lafite and the Latour, but it would be nicely balanced. Some clients prefer to follow trends and go more for the Lafites and the Latours but for a new investor, I’d much rather hedge against five wines, and maybe we’ll get another one of the top five that will accelerate alongside the Lafite when wine education in China increases.”