When you uncork a bottle of your finest 30-year-old Claret over the next few weeks, don’t be surprised if it tastes markedly different from a newer vintage. It's not just the usual variables at play — you're also tasting the effects of climate change.
Wine acts as a climate archive, each bottle capturing the essence of its vintage year. While we can thank hotter summers for a new generation of English sparkling wines, other traditional wine-producing regions are struggling to maintain quality.
Rising temperatures can accelerate grape ripening, increasing sugar levels, and creating potentially unbalanced wines with a higher alcohol content. Your favourite tipple may lose its distinct character.
Over the last 30 years, the alcohol content in Bordeaux wines, like Claret and Merlot, has risen by an average of 2.5%, and harvests now start two to three weeks earlier.
Figure 1: Taste of better times—your holiday glass of wine is a climate record keeper
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Source: Man Group
The Bordeaux disaster
The 2013 vintage in Bordeaux illustrates the acute risks of climate instability. Early heavy rains led to disease pressure and yielded the smallest harvest since 1991. Such extreme events have shifted from a 1-in-100-year event to a 1-in-25-year occurrence.
Projections indicate total rainfall will decrease by 5%, while rainfall patterns will become 10% more unpredictable by 2040. Heatwaves, which typically occur once every seven years, are expected to become biennial, posing challenges for regions unaccustomed to such extremes.
The 18 key wine-growing regions in Australia recorded a 2.47°C rise in temperatures between 1996 and 2006, while French wine growers in the Loire Valley and Alsace were faced with increases between 1.35°C and 2°C in recent decades.
Growers in California and Australia are at the forefront of adapting to these changes, supported by flexible policies that encourage experimentation with grape varieties and vineyard management techniques. They invest heavily in research and development to support sustainable practices.
However, France's strict appellation d'origine contrôlée (AOC) regulations may hinder such innovation. These rules preserve the traditional character of French wines but could impede the necessary changes.
Wine and other assets
Why are we, as asset managers, talking about wine — apart from the fact that it’s a fascinating subject, and it’s coming up to the holidays?
Like grapes, financial markets feel the "chemistry" of climate change. Physical risks from extreme weather, regulatory changes, and shifts toward low-carbon alternatives reshape market dynamics.
Extreme weather can damage infrastructure, disrupt supply chains, and reduce productivity, pressuring earnings and asset prices. Regulatory risks, such as carbon taxes and emission caps, may curtail companies’ profitability.
As climate change worsens, climate-smart investors must understand how these extremes will impact their portfolios and seek diverse returns. Much like a Bordeaux wine reflects its climate, investment strategies must adapt to these evolving conditions.
US Election Sparks Market Shift with Beta and Momentum Surge
Is the Trump 2.0 stock rally sustainable or just post-election froth? Since the Republican sweep six weeks ago, the S&P 500 reached new highs as investors bet on a business-friendly policy agenda and a major deregulation drive. Our analysis of factor performance has shown notable shifts and some surprising repricing of assets across sectors.
The post-election factor flip
Beta — which measures a stock’s sensitivity to the broader market — and momentum factors have outperformed since 6 November. Historically weak after elections, the strength of these factors highlights a market environment embracing risk and volatility.
Conversely, quality, size and value saw muted-to-negative returns, highlighting the frothy nature of the market rally where investors prioritise growth and momentum over traditional company fundamentals. Historically, factors such as earnings yield, investment quality and size have been the top performers following elections, making this year an anomaly.
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Sector standouts
Financial stocks, particularly banks, have surged on expectations of regulatory relaxation, such as the rollbacks of the Dodd-Frank Act, which is expected to reduce compliance costs and boost profitability.
Oil and gas industries also saw notable outperformance, consistent with previous Republican presidential victories. Trump's policies are expected to favour fossil fuel industries by paring back environmental regulations and increase domestic energy production. A more lenient approach to carbon emissions is projected to boost profitability in these industries.
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By contrast, gold and precious metal stocks have faced significant challenges. As risk-on sentiment prevailed and uncertainty was resolved following the election, investors moved away from safe-haven assets like gold. The potential impact of Trump’s tariffs on international trade contributed to the decline in other precious metals. exacerbating the sell-off in these commodity industries.
Traditional stock market stalwarts like semiconductor manufacturers, pharmaceuticals and biotech companies have underperformed since the election. Trump's stance on reshoring manufacturing and potential trade tensions with key semiconductor-producing countries could disrupt supply chains, while proposed healthcare reforms and leadership changes at the Food and Drug Administration may create an unpredictable regulatory environment for pharmaceuticals and biotech firms.
Navigating the new landscape
Much of the current market rally is speculative and driven by rhetoric. As the new administration takes office in January and its actual policies begin to take shape amid ever-increasing geopolitical turmoil, markets will have their work cut out navigating the realities of the Trump presidency.
All data Bloomberg unless otherwise stated.
With contributions from Matt Goldklang, Climate Scientist, Valerie Xiang, Associate Portfolio Manager, and Parth Vaitha, Analyst, at Man Numeric.
Views from the Floor is taking a short break and we look forward to seeing you back here on 7 January 2025. We wish you a very happy and peaceful holiday and a very happy new year.
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