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The economic doom and gloom is enough to turn investors to drink. Those that invest carefully rather than consume can expect another year of good returns.

Perfect weather conditions produced an exceptional vintage in 2005, with prices to match. Despite Bordeaux négociants charging over the odds, every remaining bottle of the finest wines was snapped up. Suddenly older vintages whose returns had previously languished looked real value and the sluggish fine wine market instantly came to life.

Prices have motored ahead ever since, pushed by demand from Russian oligarchs and Chinese millionaires. They may not be too keen on the taste, the Chinese often mix fine claret with Coca-Cola, but their carefree drinking means fewer bottles on the market and spiralling prices.

The conspicuous consumption of the Asian nouveau riche has left traditionalists spluttering in their temperature-controlled cellars, but it has done wonders for wine portfolios.

Paula Golding, managing director of Premier Cru, says: “The Chinese have taken all the duty off their wine imports, some 80 per cent, as they are trying to develop Hong Kong as the wine investment centre for the Asian market. They tend to drink wine much younger than in the West but now some are getting into the market for investment purposes.”

Premier Cru is just one of a number of companies that have sprung up in recent years to capitalise on the investment potential of wine. It is not a wine merchant but will advise and buy wines for clients, selecting different portfolios for income, retirement, wedding and school fees planning. All wines are then stored off site in temperature and humidity controlled warehouses. It has around 600 clients with £5m of stored wine.

“The key is how long you want to hold the wines for, when to buy, when to sell and who you should sell it to. Unless you are an expert, you will lose money,” warns Golding.

Typical trading commissions are 10- 20 per cent, which can easily wipe out a year’s profit. The value of a wine can also collapse if it is not stored correctly. Ms Golding recalls a potential seller offering a 1961 Haut Brion, typically worth £800 per bottle. It had been stored under the stairs, frequently rolled out when the vendor opened the door and would be lucky to achieve £200 today.

The wine market is unregulated and tales abound of boiler room operations selling non-existent wine and sending fake stock receipts to gullible investors. Ms Golding recommends reading up on scams at www.investdrinks.org, a website run by journalist Jim Budd.

She also warns about investing en primeur – effectively buying futures on wine still in the cask. Summer rains took their toll last year and prices are well down on levels set in the last three years. But even at bargain prices, Ms Golding refuses to buy, believing the quality too low for investment purposes.

A survey by Liv-ex, the London fine wine exchange, confirms generally low scores for the current 2007 vintage by experts such as Robert Parker and Jancis Robinson. A slight drop in their wine ratings can be the kiss of death investment-wise but the market is hard to read. Chateau d’Yquem, a long-term investment, is up around 9 per cent on last year’s prices, whilst Cheval Blanc is down as much as 25 per cent.

Buying wine not yet bottled also has other risks, says Joss Fowler of Berry Bros & Rudd, the UK’s oldest wine merchant. “The 2007 is still in the cask, will not be bottled until next year and will not arrive in the UK until Spring 2010. You must be absolutely sure the merchant has bought the wine itself and that it will be in business when it is time to deliver.”

Previous years are a safer bet, he believes. Through 2005 to early 2007, Mr Fowler says that many customers were making money before they had even paid their invoices. Returns of 20 per cent a year were not uncommon.

Wines bought in bonded warehouses operated by merchants such as Berry Bros & Rudd avoid excise duty and VAT. As wine is a chattel and wasting asset, it may also avoid capital gains tax, although the Revenue is keen to test that rule with serious investors.

Last year’s credit squeeze corresponded with the wine market’s traditional August lull, when Bordeaux négociants take their summer break. While they relaxed, many wine investors were spooked by sub-prime woes and images of long queues at Northern Rock branches.

Mr Fowler adds: “Wine has very little correlation with other assets but the situation injected a note of caution. There was maybe a 2 per cent drop, but that was down to merchants offloading stock.”

He says that demand remained solid throughout and many investors were wrong to take two years’ profits and sell out.

There are relatively few authorised wine funds on the retail market. Among them are The Vintage Wine fund from OWC Asset Management and the Fine Wine fund from Wine Asset Managers LLP.

Neither fund is particularly cheap. The Vintage Wine fund has a minimum investment of £250,000, 2 per cent management fees and a 20 per cent performance fee. The Fine Wine fund has a lower minimum of £50,000, the same management fees and a slightly lower 15 per cent performance fee.

Miles Davis of The Fine Wine fund says: “The market has survived really well. Merchant turnover is still higher and there is even demand from the Old World.”

The fund returned 30 per cent in 2007 and is up 4 per cent so far this year. Mr Davis says investors can expect mid-teen returns for the next five years.

First growth en primeur wines are also off his buying list, particularly as the strong euro is hitting British investors. Davis is looking for relative under-valuations on older vintages as these are likely to move up faster in the near future.

Ben Yearsley of Hargreaves Lansdown is a keen investor, with a 250 bottle collection typically bought at £250-£300 per case. He avoids wine funds and prefers to deal direct with his local wine merchant.

He says: “You have to find a merchant you can trust. I prefer to buy the wine myself as in 10 years I can either sell it if it has gone up in price, or just drink it. In a fund, you do not have that option.”

Laura Mossman is features editor at Investment Adviser