Meteorologists are already anticipating a strong El Niño event that could last through early spring. As the weather pattern strengthens, some markets and exchange traded funds could be adversely affected.
A team at Nomura, led by Rob Subbaraman, pointed to countries that will feel the most pain are those that are poor and import most of their food or in countries where a large portion of personal income goes to food as the El Niño weather would threaten grain crops across Asia and Central America, reports Julie Verhage for Bloomberg.
“Such countries may experience a sharp fall in GDP growth, a surge in CPI inflation, worsening fiscal and trade positions, higher interest rates, currency depreciation, and widening credit spreads,” Subbaraman told Bloomberg.
On the other hand, rich countries could benefit if they are net exporters of food.
Accounting for nominal GDP per capita, share of food in household consumption and net food exports as a percentage of GDP, Nomura points out that countries with the largest negative impact include Nigeria, Pakistan, Philippines, Hong Kong, Russia, China, India, Mexico and Portugal.
ETF investors can also watch these markets through country-specific ETFs, including the Global X Nigeria Index ETF (NYSArca: NGE), Global X MSCI Pakistan ETF (NYSEArca: PAK), iShares MSCI Philippines ETF (NYSEArca: EPHE), iShares MSCI Hong Kong ETF (NYSEArca: EWH), Market Vectors Russia ETF (NYSEArca: RSX), iShares China Large-Cap ETF (NYSEArca: FXI), WisdomTree India Earnings Fund (NYSEArca: EPI), iShares MSCI Mexico Capped ETF (NYSEArca: EWW) and Global X FTSE Portugal 20 ETF (NYSEArca: PGAL).
Meanwhile, countries that could benefit form the changing weather include New Zealand, Netherlands, Argentina, Norway and Denmark, according to Nomura.
ETF investors can also track these countries through the iShares MSCI New Zealand Capped ETF (NYSEArca: ENZL), iShares MSCI Netherlands ETF (NYSEArca: EWN), Global X MSCI Argentina ETF (NYSEArca: ARGT), Global X Norway 30 ETF (NYSEArca: NORW) and iShares MSCI Denmark Capped ETF (BATS: EDEN).
Additionally, Nomura anticipates that the El Niño event could cause large supply disruptions in the global food supply and add to a surge in food prices due to feedback loops like hoarding and speculation. Consequently, the firm believes companies like Monsanto (NYSE: MON), Potash (NYSE: POT), Mosaic (NYSE: MOS) and John Deere (NYSE: DE) could benefit as farmers grow flush on the higher commodity prices.
The companies are also major components in agribusiness-related ETFs, such as the Market Vectors Agribusiness ETF (NYSEArca: MOO), PowerShares Global Agriculture Portfolio (NYSEArca: PAGG), IQ Global Agribusiness Small Cap ETF (NYSEArca: CROP) and iShares MSCI Global Agriculture Producers ETF (NYSEArca: VEGI). For instance, MOO’s top holdings include MON 7.4%, DE 6.9%, POT 5.5% and MOS 4.0%.
For more information on the international markets, visit our global ETFs category.
Max Chen contributed to this article.