Why fine wine and fancy art have slumped this year

OENOPHILES, ARTHSBCIMFGDPUBSMSCIS&P U.S. aficionados, petrolheads and all those who like the finer things in life have, alas, not had the best year. The prices of their assets have tanked. An investor who put their money into art at the beginning of 2024 lost on average 16% by the end of November, according to the All Art index, a measure assembled by Art Market Research, which tracks sales at auction. Those who invested in fine wine lost about 11% over the same period, according to the Liv-ex Fine Wine 1000 gauge—the closest thing to a global benchmark for the wine industry. The price of diamonds has dropped by almost 20% and those of collectible cars are more or less flat.The slump follows years of heady growth that became more frenetic still during the covid-19 pandemic, when bored consumers splashed out. Prices went stratospheric. , a bank, reckons that designer dresses and handbags are 54% more expensive than they were in 2019. The price of the best Bordeaux wine reached its highest level in 12 years in 2022.It might seem surprising that the market for luxury assets has weakened since. The reckons global is on course to grow by a healthy 3.2% in 2024. Stockmarkets have gone gangbusters. And the number of super-rich people is rising fast. , another bank, reckons there will be 86m dollar millionaires around the world by 2027, up from around 60m in 2023. You might think that when stocks rally and people feel rich they are more likely to splurge on luxury assets.In fact, as Liam Bailey at Knight Frank, a property firm that produces lots of research on the super-rich, says, luxury assets are in competition with financial assets. And those less glitzy investments have offered sizeable returns in 2024 (see chart). The World index, a gauge of global stocks, has gained 17% so far this year. Bitcoin has rallied by more than 140%. Even short-term Treasuries have offered decent returns. The Treasury Bill 3-6 Month Index is up by more than 5% since the beginning of the year.Geopolitics has not helped. Russia’s war in Ukraine and conflicts in the Middle East have hit consumer sentiment in big luxury markets. Other buyers had put purchases on hold ahead of the presidential election in America. Since Donald Trump swept to victory, they have switched to worrying about trade wars; tariffs and informal bans can upend the market for luxury assets. Europe’s winemakers struggled after America introduced a 25% import tax in 2019. Antipodean vintners have rejoiced since March, when China lifted tariffs of up to 218% on Australian wine, which had been introduced after a diplomatic row in 2021.China has been another drag. For two decades it fuelled demand for fancy wares. Now the combination of a property-market crisis and a government crackdown on showy wealth is crimping spending. The impact is most obvious in the wine market. Chinese buyers developed a taste for burgundy in particular over the past decade. According to data from Liv-Ex, an industry body, the price of the highest-end of those dry red wines plunged by almost 30% over the past two years. In 2019 China guzzled 17% of the world’s wine. That has since fallen to 8%.Still, some corners of the luxury market have been resilient. According to Sebastian Duthy of Art Market Research, sales of “blue chip” art remained strong in 2024. Many of the pieces that did best at auction were by big-name artists whose work has not come up for sale for a long time. A painting by Jean-Michel Basquiat, a Neo-Impressionist, went for $46.5m at auction and one by Edward Ruscha, a pop artist, sold for $68.3m. As Mr Duthy says, investors are “playing it safe”.Moreover, even if some buyers are keeping their distance, there will remain a dedicated group of luxury-fanatics who are already planning their next purchase. They are aware that things like vintage Ferraris and pink diamonds are risky, often illiquid investments. Roy Safit, head of the Fancy Colour Research Foundation, a diamond-industry research outfit, says the gems offer something stocks and bonds don’t: an owner can show them off. “People love to celebrate their success,” he says. For Dietrich Hatlapa, head of Historic Automobile Group International, another research group, buyers “are in it for the passion”.