The high possibility of a super El Nino wave before 2027 could cause temperatures to rise sharply in many regions around the world, causing electricity demand to skyrocket, causing damage to agricultural production and reigniting inflationary pressure.
This could make it more difficult for central banks to manage monetary policy, while creating risks for the global stock market, which is trading near record highs.
El Nino appears at a particularly sensitive time. The global economy is still adjusting to the inflationary consequences caused by the Iranian conflict, while the supply chain continues to be vulnerable after months of disruption" - Mr. Ole Hansen, Commodity Strategy Director at Saxo Bank, said.
El Nino is a weather phenomenon that occurs when the sea surface temperature in the Pacific region rises over a long period of time. This phenomenon can change high and low pressure areas, leading to unusually heavy rain in some places but causing severe drought in other areas.
According to the US Climate Prediction Center, the probability of El Nino developing into a very strong wave, often informally called super El Nino, before 2027 is up to 63%.
The impact of this phenomenon has begun to appear in many regions around the world, from the late rainy season in India to Peru having to temporarily suspend the fishing season.
The last time the world experienced such a strong El Nino was in the period 2015-2016. According to a study by Dartmouth University, this phenomenon has caused the global economy to lose more than 7,800 billion USD due to reduced labor productivity.
Some sectors are being closely monitored by investors as the risk of El Nino increases, including agriculture and aquaculture, fertilizers, mining, insurance, finance and energy.
With energy, rising temperatures could reduce heat demand in North America, thereby putting pressure on the stocks of gas companies such as APA, EQT, Range Resources and EOG Resources.
All signs indicate that a rare El Nino phenomenon is forming, which could make summer in the US cooler but winter warmer, thereby creating an adverse environment for gas consumption demand" - Mr. Gabe Daoud, an analyst at Truist Securities, wrote in a report.
In Asia, higher than normal temperatures will increase demand for air conditioning and put pressure on the power grid in the context of already high energy prices.
In China, shares of power companies such as Guangdong Electric Power Development and Jinneng Holding Shanxi Electric Power have increased sharply this year, in which shares of Jinneng Holding Shanxi Electric Power increased by 64%.
In India, companies such as JSW Energy and Adani Energy Solutions are assessed to be able to benefit from the wave of increased electricity demand, according to analysts at Jefferies Financial Group.
