China’s first red wine investment fund is recently launched and plans to raise 1 billion yuan to invest in fine red wine, as rising inflation fears spur innovation in China’s competitive asset management industry. For China’s growing affluent class, there’s huge investment demand for alternative assets such as precious metals, commodities, private equity and art collections. Red wine, like other storable goods with limited supplies, has the potential to beat inflation. This close-end fund will buy top red wine from France’s renowned Bordeaux and Burgundy regions, and expects to deliver annualized returns of 15 per cent.
Guizhou International Alcoholic Beverages Expo was also held in this month. Guizhou is famous for its Moutai. The prices of Moutai have skyrocketed in recent years. The prices of it have broken through the so called barricades established by the Moutai Distillery twice in recent years. In the early 2010, the Moutai Distillery set the retail price at 730 yuan per bottle and warned its distributors to stick to this price tag with the risk of losing its distributing license if caught inflating the price. However, the market failed to fall in ranks. In January of 2011, the official upper limit price was raised to 959. Nonetheless, the current market price for Moutai is close to 1,500 yuan for the 53% Moutai.
Are wine and liquor edible farm produces? Probably not. Drinkable all right, but we do not need to feed on them. However, they are certainly made of staples and produces. If there is inflation and we need to pay more for our food, no doubt the prices of wine and liquor will multiply due to leverage effects.
But the bottom line is that we do not live on alcohol, the price hikes in vintage red wines and Moutai are said to link to the showing off frenzy of Chinese rich people. This phenomenon has also caused some tension in the Chinese society. The luxury goods do have their own characteristics and their unique positions in economy. But it also has adverse effects on the society and on the world as a whole. For instance, it might jack up the prices of grains to the extent that poor people cannot afford. As such, the Taiwanese government starts levying luxury taxes mid this year. Since it is not staples or essential food, the pricing bubble tends to be blown out of proportion and the burst of it is more frightening. Therefore, the investors need to be really cautious in the alcohol economy under the threat of inflation.