El Niño is likely to intensify in the second half of this year, affecting investment sentiment in the agribusiness, food and water management sectors, analysts say.
The natural climate phenomenon that fuels tropical cyclones in the Pacific and boosts rainfall and flood risk in parts of the Americas will cause huge damage to the global economy because it is normally associated with record-breaking temperatures.
The effects of El Niño during 1997-1998 were some of the most devastating ever, leading to US$5.7 trillion in income losses around the world, according to a study published earlier this month. This was much higher than previous estimates that put the losses at $96 billion.
Thailand's Meteorological Department has said the amount of rainfall this year would be lower than in the past, potentially causing water shortages. The country is also likely to feel the effects of the ongoing and prolonged drought in the western Pacific islands, analysts said.
A decline in the number of marine animals has had a direct and indirect impact on food production for the world's human population, while water consumption in the industrial sector could also be hurt by this development. The Joint Standing Committee on Commerce, Industry and Banking estimates that the El Niño phenomenon could cost the Thai economy around 36 billion baht.
Bualuang Securities (BLS) research expects El Niño to intensify in the second half of this year and remain at a high level until February 2024. The impact would be seen in the form of drought in most parts of Asia, affecting sugarcane and soybean plantations as well as sugar production.
One of the agricultural crops most seriously affected by El Niño is sugar cane, resulting in a huge drop in output and, therefore, causing the world sugar price to jump sharply in 2023 to the highest level in 10 years at $0.27 per pound.
Livestock would be affected by the rising cost of animal feed but this would be compensated by the rise in the sales price. "The hotter the weather, the less produce will be released to the market," BLS said in a report.
At the same time, the increase in the price of tuna during El Niño has turned out to be a negative factor for SET-listed Thai Union Group, the world's leading tuna producer. Meanwhile, BLS still recommends a speculative purchase of Khon Kaen Sugar Industry and holding Thai Vegetable Oil.
DBS Vickers Securities (Thailand) said that when rainfall is lower than normal, the amount of agricultural output would also drop and push prices higher. If the supply of agricultural products drops, the income of the sector would decrease dramatically and this would also affect exports.
Stocks that would benefit when drought occurs include electric fan and air conditioner manufacturers, along with fruit juice and beverage producers such as Osotspa, SAPPE, Tipco Foods, Malee Group, Ichitan Group and TAC Consumer.
Firms that will feel negative effects from lower rainfall and insufficient water supplies are Eastern Water Resource Development and Management, TTW, and WHA Utilities and Power, says the brokerage.