THE BLOG

The Shortest Bear

22/01/2016 12:49 GMT | Updated 22/01/2017 10:12 GMT

The FTSE100 entered an official bear market on Wednesday (20% under its most recent high), and then proceeded to spend Wednesday, Thursday (and Friday so far) recovering. Oil is back above $30/barrel, the yield on 10 year British treasury bonds is unchanged, and Sterling is appreciating against both Dollar and Euro.

Global markets are lurching from one extreme to another, risk off one day, risk on the next, able to be both buoyed by expectation of government intervention and petrified of the same. Current financial markets evoke the groundhog who cannot be sure if he has seen his own shadow or not, but would rather just get back into his hole and sleep for an extra few weeks, just in case.

In a financial climate like this where the only certainty is uncertainty it's instructive to look at the few markets that are showing stability and positivity. While gold has popped its head back above $1100/ounce one would struggle to identify a real trend in the movements over the last few months. Even gold, normally the port in a storm seems to be struggling for direction.

The major risks to markets appear political, rather than purely financial, and there is more turbulent water ahead. On top of the issues markets have been dealing with for the last year or more (war in Syria, the return of Iranian oil to the market, sanctions against Russia, the question of when central bank policy returns to normality) a US election this year will certainly bring market uncertainty, as will an EU referendum in the UK.

Against this background, wine has remained for the most part calm and stable. In fact the period since mid-November has seen a 3% rise in the value of the liv-ex 50. With the EU referendum almost certain to cause more fluctuation in the £:€ rate (likely negative for Sterling) one can reasonably expect further increases in the Liv-ex 50.

Currency is certainly a factor in the Liv-ex 50 outperforming other markets, but it is by no means the only thing driving the movement of wine. The fundamentals are in their own right of huge interest to serious investors: a treasure asset like art or classic cars, and sharing many of their characteristics but much more (forgive the pun) liquid, wine is an improving asset in diminishing supply, production levels are hugely restricted by both geography and law and demand is large, international and increasing.

When mainstream markets make you turn to drink, perhaps the prudent financial decision is in fact to turn to drink.

Find out more about fine wine's current performance at www.vin-x.com