A "Super El Niño" is anticipated to develop by late 2026 and strengthen into early 2027, with the US Climate Prediction Center indicating an 82% chance of its development between May and July, and a 67% chance of it being strong to very strong by November-January. This weather phenomenon, characterized by sustained warming of Pacific Ocean surface temperatures, is expected to bring extreme weather conditions globally, including droughts in some areas and excessive rains in others. This climate risk is prompting a reassessment of investments across various sectors, particularly agriculture and insurance, and poses a threat to global equities currently trading near record highs.
The El Niño event is projected to cause higher temperatures in certain regions, leading to a surge in power demand and hurting crop yields, which could reignite inflationary pressures. This complication could impact central bank policies. Specific impacts include reduced palm oil yields in Indonesia, which is the world’s largest producer, negatively affecting plantation earnings and local stocks. Conversely, the weather pattern could bring beneficial wetter conditions to the southern US and parts of the US Plains, and Brazil may see increased rainfall for its soy crops. Southern Africa is also projected to have above-average cereal output for 2026.
Several sectors and companies are expected to be affected differently. Crop producers, especially those in affected regions, are likely to bear the brunt. However, companies specializing in irrigation and water management, such as India's VA Tech Wabag Ltd., Jain Irrigation Systems Ltd., Astral Ltd., and Shakti Pumps India Ltd., may find opportunities as farmers contend with drier conditions. Fertilizer firms could benefit significantly if El Niño tightens global crop supplies, driving demand for key nutrients. Power companies in Asia, including China's Guangdong Electric Power Development Co. and Jinneng Holding Shanxi Electric Power Co., have already seen strong gains. In the consumer space, beverage producers like Spritzer Bhd and Fraser & Neave Holdings Bhd are expected to see increased demand due to hotter weather, while fast-moving consumer goods (FMCG) giants like Nestle (M) Bhd and poultry/livestock companies such as Leong Hup International Bhd and QL Resources Bhd could face rising commodity costs due to disrupted grain yields and biological risks from extreme heat.
