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.”
El 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 Aquaculture
Crop 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 centralize 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.
El 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.
Mining
Heavier rainfall in parts of South America can disrupt transportation networks and potentially affect mining operations, including copper production in Chile and Peru, Saxo's Hansen said. That would have knock-on effects for metals and manufacturing stocks amid disruption in supply chains, input costs and operating conditions these sectors rely on.
Copper miners with operations in Chile and Peru that may come in focus include Freeport-McMoRan Inc. and Anglo American Plc.
Meanwhile, power constraints can hit hydropower-dependent aluminum smelting in regions such as China.
In Indonesia, UBS estimated that economic growth may fall 1% as a result of El Niño after four quarters as drought damages agriculture and mining. That may put PT Amman Mineral Internasional and PT Merdeka Copper Gold on investors' radar.
Insurance, Financials
The hurricane-weakening effects of El Niño may be positive for property and casualty insurers in the Northern Hemisphere.
“This potentially helps insurers in hurricane prone regions like Florida,” said Bloomberg Intelligence analyst Matthew Palazola. “That market is dominated by private mutuals and smaller regionals, though Allstate is a large public carrier in the state.”
Piper Sandler & Co.'s Paul Newsome reiterated benefits for insurance firms, saying “most US based insurers will benefit from lower claim expense because US hurricanes are a major source of claim costs.” Companies such as Allstate Corp., Progressive Corp., and Travelers will likely benefit, he said.
The outlook for the broader financial sector may be less straightforward, with banks exposed to weather-sensitive industries likely to take a hit.
JPMorgan Chase & Co. analysts including Yuri Fernandes see negative impacts for Peruvian lenders, given the weather pattern's ability to disrupt loans tied to fishing and agriculture activity. The bank downgraded shares of Credicorp Ltd. and Intercorp Financial Services on El Niño headwinds and political-transition noise tied to Peru's election.
Micro lenders in India, including Bandhan Bank Ltd., may also be affected as a weaker monsoon may reduce crop output and farm earnings.
ALSO READ: Govt Expects Severe El Nino Impact In 9-10 States, Activates Kharif Contingency Plan
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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