A Trader’s Guide To More Extreme Weather Events

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by Tyler Durden
Tuesday, Jun 06, 2023 - 10:55 AM

By Georgina McKay and Ashutosh Josh, Bloomberg Markets Live reporter and strategists

From Australian mining behemoths to Florida theme parks, investors are betting on whether companies will benefit or take a hit as extreme weather becomes the norm around the world due to climate change.

Hard-to-predict weather has always been one of the risks that companies face, but the rising frequency of events such as flash floods and heat waves adds to uncertainties for businesses and global money managers. It’s “virtually certain” that hot extremes will increase globally, and they are likely to last longer, a United Nations climate-change panel said in its latest report.

Climate-related risk is getting factored in global investors’ decision making significantly as extreme weather can play havoc and turn all plans upside down,” said Akshay Panth, the chief investment officer of climate and social impact fund Neev.

JPMorgan Chase & Co. strategists see the risk of El Niño returning to Southeast Asia later in 2023, weighing on agriculture output, farm income, industrial production and investor sentiment, analysts led by Rajiv Batra wrote in a note.

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 high temperatures forecast as summer demand peaks, shares of dairy firms such as Parag Milk Foods Ltd. and Heritage Foods Ltd. are soaring.

Heat waves around the world will likely lead to a fresh test of electricity grids just months after hot weather and drought throttled hydropower and triggered widespread power shortages. Energy companies have been in focus in the Philippines as some areas become dangerously hot. In China, Shanghai is sweltering, and Guangdong to Hainan face peak power demand.

Droughts may hit hydro and affect nuclear power generators as well, by reducing water needed to generate energy and cool reactors, as happened to the to-be government-owned Electricite de France SA last year. Extreme weather may drive more demand for clean energy companies such as Scatec ASA in Europe, First Solar Inc. in the US and Adani Green Energy Ltd. in Asia.

The insurance industry is struggling to adapt to a new normal in which losses fueled by climate change are now regularly exceeding $100 billion a year. Shares of Suncorp Group Ltd., Insurance Australia Group Ltd. and QBE Insurance Group Ltd. were all hit by extreme rains that fell over New Zealand during Cyclone Gabrielle.

Reinsurers such as Reinsurance Group of America are leveraged to weather, especially if they deal in the property sector. General Insurance Corp., India’s biggest reinsurer, has been warning about “catastrophic losses” faced by the industry that are likely to result in further price increases.

In resource-rich Australia, Newcrest Mining Ltd.’s Telfer gold mine was closed earlier this year and the company’s shares fell from more than a two-year high after the biggest cyclone to hit the Western Australian coast in almost a decade made landfall. That followed heavy rain and flooding that hampered coal production for miners such as Whitehaven Ltd. and BHP Group late last year.