2024 is a year of political purgatory. By its end, 64 countries covering almost half the global population will have taken to the polls. With conflict in the Middle East, rising tension between the world’s two largest economies, and a resurgence of nationalism across parliaments in Europe, the only certainty is uncertainty.
And as the saying goes, where there is smoke, there is fire. Government instability increases the risk of either political paralysis or poor policy-making – in either scenario, financial markets can experience turbulence.
If you find yourself preoccupied by the prospect of another Macron or Trump 2.0 moment, take a look back at Liz Truss’ tumultuous 45 days in office. Her mini-budget – proposing severe tax cuts and increased government spending (through yet more borrowing) – sent the pound plummeting to its lowest ever value against the US dollar. The chart below shows the impact on UK treasuries that drove some pension funds to the brink of bankruptcy, and triggered an unprecedented intervention by the Bank of England. All the while, the Liv-ex Fine Wine 100 remained stable.
As a physical asset decorrelated from financial markets, fine wine’s defensive power in tough times is tried and tested. Between June 2008 and June 2009, the Liv-ex Fine Wine 100 fell by 18%, while the S&P 500 fell 30%. During the economic fallout of Covid-19 between January 2022 and December 2023, the maximum deviation of the S&P 500 was 24%, compared to 8% for the Liv-ex Fine Wine 100.
A carefully curated portfolio of fine wine can act as a stabling agent during times of political uncertainty. Prospective investors be advised, this is an asset class reserved for those with long-term vision, as it is increasing scarcity over time that feeds the compounding of value appreciation. If you are ready for a fine wine investment marathon (not a sprint) to amortise market cycles, then you’ll benefit from wine’s ability to hedge against inflation, and be protected from devaluation when the next Liz Truss moment hits.