By Georgina McKay and Ashutosh Joshi
Stock pickers in some of Asia’s key markets are being battered by a series of extreme weather events from heat waves to flooding, signaling the difficulties ahead as El Nino-related risks rise and climate change accelerates.
Further west, India’s hottest February in more than a century, following a spike in cattle deaths caused by a viral skin disease, fueled a rare drop in dairy production in the world’s largest milk-producing nation. With more heat waves forecasts alongside peak summer demand, shares of dairy firms such as Parag Milk Foods Ltd. and Heritage Foods Ltd. are soaring.
“Its become complex to predict the demand and output trends and take sector or stock calls because weather is uncertain,” said Jigar Shah, the Mumbai-based head of research at Kim Eng Securities Pvt. “The agri and food chain is at significant risk if this goes uncontrolled.”
The possibility of an El Nino weather pattern forming — typically signaled by higher-than-normal water temperatures in the eastern Pacific — means hotter and drier conditions for Asia and Australia.
A Bloomberg Intelligence analysis suggested that Indian stocks with more exposure to rural areas may be harder hit by expectations of an El Nino than urban-oriented shares.
That was supported by a note from JM Financial on Tuesday, which addressed the risk of a disruption in the monsoon rains.
“We believe that in such a scenario, rural-facing sectors could be at risk, especially tractor and two-wheeler sales,” JM Financial analyst Hitesh Suvarna wrote in a note.
Chamath De Silva, a senior fund manager for BetaShares Holdings in Sydney, said he sees insurance firms among the few possible longer-term winners in an era where climate continues to spark negative supply shocks, with the rising risk for such events eventually resulting in higher premiums.
‘More Frequent’
Researchers who use complex modeling to predict climate change say the more extreme events are here to stay.
“It is virtually certain there will be more frequent hot extremes and fewer cold extremes at the global scale and over most land areas in a future warmer climate,” the UN’s Intergovernmental Panel on Climate Change reiterated in its latest report. “It is very likely that heat waves will occur with a higher frequency and longer duration.”
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