In June 2000, Hong Kong’s then financial secretary, Donald Tsang, held a seminar on the city’s aspirations to “serve as the world’s wine industry partner in Asia”.

A decade later the Special Administrative Region (SAR) has succeeded with aplomb. Wine auctioneers arrived on the scene only two years ago, with Bonhams holding the first wine sale in the SAR after its shrewd government axed all duty on the commodity in February 2008.

The city has been hosted to more than 30 wine sales, overtaking London last year in revenues. It looks certain to secure top spot in 2010, already 36 per cent ahead of New York after the first five months, with a total of HK$513.3m ($65.9m).

Hong Kong’s lavish affairs have fetched six times more than London’s modest events, despite the capitals’ nine auctions apiece. The world’s most sought-after wines increasingly end up in the former British colony, where lots average double the price of those auctioned in the US and four times that of European offerings.

Hong Kong’s lightning ascent coincided with a global recession that hit far harder in the west, thus magnifying the market’s relative performance.

On top of Hong Kong’s abolition of its 40 per cent wine tax, and a 20 per cent drop in prices, the subsequent collapse of sterling – by about one third against the Hong Kong dollar (and the yuan) – was the final catalyst for buyers across Asia, unleashing artificially suppressed demand into the newly established fine wine conduit.

An ever-increasing number of wealthy Asians are embracing a fine wine culture. Particular hype surrounds auctions: the glitzier the better. US powerhouses Acker, Merrall & Condit and Zachys had noteworthy success with their two-day extravaganzas, where buyers are fed and watered.

Masterminding Asia’s largest auction yet in the last weekend of May, Acker offered 19,000 bottles from the cellar of US entrepreneur Eric Greenberg, realising sales of HK$152m.

Wines from the collection, worth more than $400,000 were served at 16 pre-sale events lover a two-week period for loyal, deep-pocketed clients. Needless to say, VIPs at the Great Wall dinner outside Beijing were not served the local wine of the same name with the menu by Guy Savoy, but Bordeaux first growth courtesy of Château Margaux.

“Some critics would call this incredible excess,” said Acker’s consultant Gil Lempert-Schwarz. “We can only say that the result speaks for itself.”

As top wine brands such as Margaux increase marketing efforts à la Lafite, then, like must-have designer label Louis Vuitton, they will know no bounds in Greater China. The fine wine market – stomping ground of the rich – is correlated not with traditional financial investments but rather with the number of billionaires globally. With two-thirds of the 97 new billionaires in 2010, it is no surprise Asia quickly became a keystone for the fine wine trade.

Wine auctions around the world took several months to react to the financial crash, as personal wealth buoyed the market.

Auctions present an unparalleled opportunity to acquire the rarest bottles with the highest cachet, attracting high-rollers who outbid more cautious trade buyers. Estimate-smashing prices often result, yet overall, the price of a wine at auction is considerably lower than a merchant’s average price.

Being less sophisticated and necessarily confined to the audience on the day, a saleroom leads to highly volatile pricing, even compared with the still antiquated and relatively opaque merchant businesses.

With buyers back in the saleroom in droves, 2010 will see growth across the board, in contrast with last year. Auction sales in 2009 were down 16 per cent year on year, a drop of 35 per cent in Europe and the US that was somewhat masked by a 130 per cent rise in Hong Kong.

However, western markets recovered solidly this year, with the US Wine Spectator Auction Index up 6 per cent in the first quarter.

Sell-through rates in the US and Europe are also healthy, with weighted averages of 95 per cent and 94 per cent respectively to May, but still lag behind Hong Kong’s 98 per cent.

Moreover, western auctioneers are heavily reliant on Asian buyers, who last year represented 37 per cent of Sotheby’s London sales (and 99 per cent of its Hong Kong sales). The auction house has averaged an impressive 97 per cent of lots sold at its five auctions in London so far this year, though arguably on the back of strong demand from the orient.

Private Asian buyers typically acquired four of the top 10 lots, many through online bidding, introduced last year by all leading auction houses, facilitating a truly globalised market.

Furthermore, a significant proportion of lots sold to trade buyers will end up on the Asian continent.

As more investors turn away from traditional assets, and to auctions as a potential source of bargains, there is no sign of the auction market slowing.

Wine consumption in Greater China grew faster than in any other region in 2008, according to a report by the International Wines & Spirits Record, which predicts that across Asia consumption will rise more than 25 per cent between 2009 and 2013.

As Asia drives global sales, all eyes are on mainland China, where people sustain seemingly bottomless demand by drinking what they buy.

The country’s GDP will grow 10 per cent this year, according to the IMF, and no doubt aspirational middle class oenophiles with it.

The floodgates are open. If Hong Kong’s current financial secretary John Tsang succeeds in his mission to relax the mainland’s draconian import laws, then the dam will break too. Will the auction phenomenon take hold in greenfield China? Highly likely.
 

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