A stock trader’s guide to navigating rare ‘Super El Niño’
As concerns over the Iran war recede, stock investors are confronting another threat: climate risk, which is prompting a reassessment of bets across sectors from
As concerns over the Iran war recede, stock investors are confronting another threat: climate risk, which is prompting a reassessment of bets across sectors from agriculture to insurance.A high probability of a “Super El Niño” heading into 2027 may drive up temperatures in some parts of the world, sending power demand surging, hurting crop yields and reigniting inflationary pressures. That could complicate the outlook for central banks, posing a risk to global equities trading near record highs.“El Niño arrives at an especially sensitive moment,” said Ole Hansen, head of commodity strategy at Saxo Bank. “The global economy is still adjusting to the inflationary consequences of the Iran conflict, while supply chains remain vulnerable following months of disruption.” 131886173El Niño is a weather pattern that occurs with sustained warming of Pacific Ocean surface temperatures. This can lead to patterns of high and low pressure that translate into excessive rains in some parts of the world and drought in others. There’s a 63% chance it could evolve into a very strong event — what’s informally known as a “Super El Niño” — heading into 2027, according to the US Climate Prediction Center.The impact is already being felt across various regions, from a delayed start to the Indian monsoon to a temporary halt to Peru’s fishing season. The last time the world faced such a strong El Niño, in 2015 and 2016, the result was more than $7.8 trillion in lost productivity, based on a Dartmouth College study.Here’s a look at some of the sectors closely watched by investors as El Niño risks build.Agriculture And AquacultureCrop producers are likely to bear the brunt of a stronger El Niño, though the impact will vary across regions and commodities.
In Indonesia, the world’s largest palm oil producer, hotter and drier weather typically reduces yields, clouding the outlook for plantation earnings and adding pressure to local stocks already weighed down by concerns over Indonesia’s market-classification status and move to centralise key commodity shipments.Global production of corn and wheat may also be negatively affected by the weather phenomenon, according to UBS Group AG, as well as sugar output in Asia. India, the world’s second-largest sugar producer, has banned exports until the end of September, dragging shares of millers such as Shree Renuka Sugars Ltd. and Bajaj Hindusthan Sugar Ltd. 131886180Meanwhile, improved rainfall in Argentina and higher sugar prices may benefit some Latin American firms, including São Martinho and Adecoagro SA, according to Morgan Stanley. El Niño has also been globally supportive for soybean output, particularly for major producers in the US and the south of Brazil, UBS analysts said. Investors may also find opportunities in companies tied to irrigation and water management as farmers cope with drier conditions. Indian firms, including VA Tech Wabag Ltd., Jain Irrigation Systems Ltd., Astral Ltd. and Shakti Pumps India Ltd. may benefit.Berenberg chemicals analyst Sebastian Bray highlighted fish oil producers as a potential beneficiary. With Peruvian fish oil prices hitting record highs over the last two months, Bray noted this trend favours producers of Omega-3-rich algal oils, such as Europe’s Corbion NV.FertilisersFertiliser firms could be among the biggest beneficiaries of El Niño if the weather pattern tightens global crop supplies, supporting demand for key nutrients including nitrogen, phosphorus and potassium. “All else equal on idiosyncratic and other issues, to play a Super El Niño event, we would seek to maximise exposure to short-cycle, price-responsive nitrogen names,” Scotia Capital Inc.
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