Heat Waves, Cyclones, Unseasonal Rain Fall, Are Impacting Asia's Stock Market Investors

Sudden extreme weather and frequent occurrences of cyclone, unseasonal rain fall, etc, continue to cause a lot of economic damage, they are equally impacting Asian stock markets at a large level. It is likely that difficulties related to El Nino will also accelerate in future as per a Bloomberg report.

Extreme weather has always been part of the cost of doing business, but the frequency of such calamities is increasing. Such extreme weather induced volatility is although not restricted to only Asia, but certainly the region where the impact on stock markets has been outsized so far this year.

Researchers and analysts who track the impact of these events have a message for traders struggling with stock swings: get used to them.

Stock pickers in certain key pockets of Asian 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.

Earlier in the month, Australian company, Newcrest Mining Ltd.'s Telfer gold mine was closed leading to a fall in the company's stock price from more than a two-year high. After the biggest cyclone experienced to hit the resource-rich Australia's western coast in almost a decade made landfall. It was followed with heavy rain and flooding that hampered coal production for miners such as Whitehaven Ltd. and BHP Group late last year.

Further west, India recorded one of the hottest February in more than a century, following a spike in cattle deaths caused by a viral skin disease. This 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."

El Nino Risk

The probable indications of an El Nino weather pattern formations, signalling higher-than-normal water temperatures in the eastern Pacific means hotter and drier conditions for Asia and Australia.

Likewise, stocks of Thailand's agricultural firms, drinks manufacturers and related companies have become a focus after a local report hinted at similar weather conditions for the Southeast Asian nation in the coming months.

As per Bloomberg Intelligence analysis Indian stocks with more exposure to rural areas may be harder hit by expectations of an El Nino than urban-oriented shares.

"Forecasts of El Nino conditions this year could lead to a monsoon rainfall deficit, impeding crop production and stalling the rural recovery," BI analyst Nitin Chanduka wrote in a report on Monday.

Unpredictable weather, coupled with geopolitical issues including Russia's war in Ukraine, has also led to more abrupt changes in supply and demand patterns.

A senior fund manager, Chamath De Silva at 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.

Meanwhile, other sectors and markets will benefit as they help fill the gap when extreme weather or natural disasters undercut supply in another region, said Hebe Chen, an IG Markets analyst based in Melbourne.

"Extreme weather events, regardless of their types and sizes, unstoppably ripple through the financial markets in both predictable and unpredictable ways. It is not uncommon that these ripples could turn into a tidal wave," she said.

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.