When the Ocean Runs Hot: Investing Through History’s Biggest El Niño

The potentially strongest El Niño on record could create a delayed inflation and earnings shock through 2027, with concentrated risks in South and Southeast Asia and uneven effects across industries.

• The 2026-27 event is intensifying faster than previous major episodes, and Zeke Hausfather’s review of 14 climate models through July suggests it could be the strongest on record.
• The starting point is unusually fragile: fertilizer and grain flows have already been disrupted by Iran and Ukraine, while the Peterson Institute estimates contemporaneous global losses of about $686 billion, or 0.6% of GDP, potentially reaching $3.1 trillion cumulatively over five years.
• Commodity exposure is concentrated in vulnerable exporters: Indonesia and Malaysia produce about 85% of global palm oil, while Vietnam is a major robusta coffee exporter and India and Thailand are important rice exporters.
• The shock is expected to progress from water stress in Q3 2026 and peak disruption in Q4 2026 to visible commodity effects in Q1 2027 and the strongest inflation and growth effects in Q2 2027.
• Food commodity prices could rise by up to 9% according to earlier ECB estimates and closer to 15% in newer estimates; cooling operators, air-conditioner makers, some utilities, shipping companies and insurers could benefit, while food-exposed staples, agriculture and industrial users face margin pressure.

Takeaway: Investors should assess sourcing flexibility, water and physical infrastructure, cost pass-through and earnings assumptions before the effects appear in 2027 results, while recognizing that outcomes depend on where production losses occur and how policy responds.