China's largest bank has launched the country's first wine trust project, in the hope that alternative investments may prove to be fruitful amid the sluggish global capital market.
The trust was initiated by the Industrial and Commercial Bank of China (ICBC), China National Cereals, Oil & Foodstuffs Corp and Zhonghai Trust Co Ltd. The first phase of the project will see an investment of up to 98 million yuan put into the project.
"So far, the project has been more than double oversubscribed," said Ma Xutian, deputy general manager of the financial market department of the ICBC, adding that the product now only targets ICBC's private banking customers and enterprise customers.
Different from other wealth management products, the unit of the wine trust is measured by the "barrel", with each barrel containing 300 bottles of wine. Each investor is limited to buying a maximum of two barrels of wine.
The period for the investment is 18-month long, with the annualized investment return hovering around 8 percent.
Industry statistics show that in the last 20 years, fine wine has outperformed a number of equity and fixed income indices including the FTSE 100. For long-term investors, a well chosen and balanced wine portfolio should provide returns of 10 to 12 percent per annum.
"Wine is less volatile than stocks and shares, make it a less risky investment. Moreover, it is not highly correlated with the stock market, which makes it attractive to investors looking to diversify a portfolio," said Ma.
Due to the sluggish global capital market, more and more banks are turning their eyes on investment alternatives. China Minsheng Banking Corp, for instance, has launched a fund investing in fine arts.
According to Li Xiaoyun, head of Societe Generale China private banking division, wine and art works are usually with high investment values and could provide a more steady income.
"However, as such investment usually requires a special expertise, it is more feasible for banks to bring in the third party to run such wealth management products," Ma added.
To be regarded as a good investment, experts say a wine requires all or most of the following attributes:
It must have an instantly recognized label or brand with a long track record of quality and a high to very high price.
It must come from a good or great vintage and be highly rated by leading wine critics on both sides of the Atlantic
It must have strong and consistent global demand for previous vintages of similar quality.
(China Daily July 15, 2008)
