Rudi’s View: Focus On El Nino

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        (
            [0] => ((GNC))
            [1] => ((ELD))
            [2] => ((IAG))
            [3] => ((SUN))
            [4] => ((QBE))
            [5] => ((NUF))
            [6] => ((RIC))
            [7] => ((BGA))
            [8] => ((CBO))
            [9] => ((ING))
            [10] => ((SHV))
            [11] => ((SPG))
            [12] => ((TFL))
            [13] => ((AAC))
            [14] => ((AVG))
            [15] => ((TWE))
            [16] => ((RFF))
            [17] => ((NAB))
            [18] => ((BEN))
            [19] => ((MIN))
            [20] => ((NHC))
            [21] => ((ORI))
            [22] => ((NRW))
            [23] => ((VNT))
            [24] => ((TLS))
            [25] => ((BHP))
            [26] => ((LYC))
            [27] => ((GMG))
            [28] => ((SEK))
            [29] => ((TLC))
            [30] => ((XRO))
            [31] => ((IFT))
            [32] => ((SIG))
            [33] => ((STO))
            [34] => ((QUB))
            [35] => ((REA))
            [36] => ((SGP))
            [37] => ((ALD))
            [38] => ((PDN))
            [39] => ((SGH))
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    [1] => Array
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            [0] => GNC
            [1] => ELD
            [2] => IAG
            [3] => SUN
            [4] => QBE
            [5] => NUF
            [6] => RIC
            [7] => BGA
            [8] => CBO
            [9] => ING
            [10] => SHV
            [11] => SPG
            [12] => TFL
            [13] => AAC
            [14] => AVG
            [15] => TWE
            [16] => RFF
            [17] => NAB
            [18] => BEN
            [19] => MIN
            [20] => NHC
            [21] => ORI
            [22] => NRW
            [23] => VNT
            [24] => TLS
            [25] => BHP
            [26] => LYC
            [27] => GMG
            [28] => SEK
            [29] => TLC
            [30] => XRO
            [31] => IFT
            [32] => SIG
            [33] => STO
            [34] => QUB
            [35] => REA
            [36] => SGP
            [37] => ALD
            [38] => PDN
            [39] => SGH
        )

)

This story features GRAINCORP LIMITED, and other companies.
For more info SHARE ANALYSIS: GNC
The company is included in ASX200, ASX300 and ALL-ORDS

With El Nino plausibly arriving later this year, potential weather impacts will increasingly gain investors' attention.

By Rudi Filapek-Vandyck, Editor

Neither the US National Oceanic and Atmospheric Administration (NOAA) or, locally, the Bureau of Meteorology (BOM) have made the official forecast just yet, but signs are pointing into the direction of another El Nino arriving later this year.

El Nino featured prominently during recent result releases by GrainCorp ((GNC)) and Elders ((ELD)). To quote our very own Corporate Results Monitor:

“GrainCorp’s share price tumbled over -13% following the release of H1 financials. That had more to do with investor concerns about weather forecasts and impact on future crops.”

https://fnarena.com/index.php/reporting_season/

Not that Elders shares have been better off post result release –those shares are off -21% four days after market update– but that release combined much higher costs (disappointment) with weather related investor anxiety.

So far the official view at BOM is models are expecting the tropical Pacific to keep warming and likely reach El Nino thresholds by early winter, but an atmospheric response still needs to appear before El Nino is considered “established”.

NOAA is on El Nino Watch, ascribing an 82% chance of El Nino emerging in May-July and a 96% chance it continues through the northern winter of 2026-27, while also warning peak strength remains uncertain.

The latter warning refers to the possibility of a Super El Nino arriving, which would open up the potential for more extreme weather events.

Assuming the current trend in signalling continues (and El Nino is thus on its way), the following should be expected:

• Less rainfall across much of eastern and southern Australia
• Warmer days and nights, with elevated chance of heatwaves
• Higher fire-weather risk
• Weaker snow season

To put it succinctly: it’s getting warmer and drier, with regional inconsistencies. In case of a Super variant, it’ll be more of the same.

El Nino Victims

My first thoughts are always: this is why I don’t invest in insurance companies.

A recent update on the matter by Macquarie points out the three ASX-listed insurers –Insurance Australia Group ((IAG)), Suncorp ((SUN)) and QBE Insurance ((QBE))– have been among prominent underperformers across El Nino periods post 2000.

Instinctively, I think this makes sense. The only way to account for the unknown risks is by applying a valuation discount and then wait and see what happens.

Has this now happened already in 2026?

Earlier in the year, I’d be inclined to suggest the answer to that question was probably ‘yes’ but insurers’ share prices have been somewhat on a tear recently, and now the answer is most likely ‘no’.

Together with GrainCorp and Elders, agricultural exposure on the ASX is almost exclusively represented by smaller cap companies. This implies relatively small changes can have a magnified impact.

See also the share price moves mentioned earlier. Investors should not be surprised if share prices start accounting for what may well lay ahead later in the year (and beyond).

Think Nufarm ((NUF)) and Ridley Corp ((RIC)), but also Bega Cheese ((BGA)), Cobram Estate Olives ((CBO)), Inghams Group ((ING)), Ricegrowers ((SGLLV)), Select Harvests ((SHV)), SPC Global Holdings ((SPG)), and Tasfoods ((TFL)).

Australia’s largest cattle herd owner, Australian Agricultural Co ((AAC)) has returned to profit in FY26. See the ASX releases today.

I wouldn’t exclude the winemakers either: Australian Vintage ((AVG)) and Treasury Wine Estates ((TWE)). Not that that sector hasn’t already enough challenges to deal with.

Among the REITs, Rural Funds Group ((RFF)) –currently offering a 5.9% yield– would have the largest exposure.

Macquarie’s research also identifies National Australia Bank ((NAB)) and Bendigo and Adelaide Bank ((BEN)) through lending exposures.

My gutfeel tells me there could be negative impacts for supermarkets and food retailers too, depending on how bad supply can be impacted.

El Nino Beneficiaries

El Nino doesn’t only create weather-related victims; some sectors might actually benefit as drier conditions lower the chances of wet weather interruption (so more work can be done, unless temperatures rise too high for comfort).

Mining companies, especially those with open surface operations, come to mind, but equally mining services providers, building materials companies, and real estate developers.

As Macquarie states: the mechanism is simple: fewer rain delays, better productivity.

Macquarie’s basket of El Nino beneficiaries contains the likes of Mineral Resources ((MIN)), New Hope Corp ((NHC)), Orica ((ORI)), NRW Holdings ((NRW)), and Ventia Services ((VNT)) but that list is far from exhaustive.

Needless to say; potential El Nino benefits won’t necessarily be the key drivers underneath these share prices just yet, while it is far more likely the market’s focus will first shift towards the risks.

There is also still the possibility El Nino develops into a Super phenomenon. In that case the impact can become potentially a lot broader and larger.

Macquarie is suggesting a food-inflation shock could translate into RBA rates staying higher for longer, or even result in more rate hikes.

This is not a scenario theoretically put forward as a potential ‘what if’ outcome. Analysts at Citi seem quite convinced food inflation is one of the dangers lurking around the corner for global consumers and economies.

A severe drought would also negatively impact on regional economies. With farm-export volumes on the nose, Macquarie would expect the Aussie dollar to weaken as the loss in these exports won’t be compensated through positive terms of trade impacts.

Since 2000, El Nino has appeared three times in a rather weak format in 2005, 2006 and 2018. A standard El Nino has appeared in 2002 and 2009, with a strong variant in 2015.

There was one half-hearted one in 2023.

Macquarie suggests the El Nino from 2002 is perhaps the closest analogy with interest rates equally somewhat restrictive at that time in Australia.

Back then, miners and real estate stood out among local market outperformers, while consumer services, insurance and staples retail delivered poor returns.

What these generalised notes don’t mention is whether there were any specific sector- or stock-related influences in play. For example, back then El Nino associated with higher electricity prices, but Macquarie is not so sure about a repeat this time around.

“The energy market has structurally changed since.”

Plus, as said, weather-impacts won’t be the only drivers underneath share prices moving going forward.   

Best Buys & Conviction Calls

Portfolio managers at T Rowe Price have maintained a slight Overweight allocation to global equities, but Australia is missing out as exposure to the ASX has been dialed back to Underweight.

T Rowe Price is not comfortable with inflationary pressures building on the back of the Middle East war and rather prefers AI optimism and the energy self sufficiency of the US.

Recent quarterly results in the US have certainly confirmed there are currently less question marks over growth and corporate earnings in the US than at home in Australia.

****

Strategists at Morgan Stanley have made multiple changes in recent days, also inspired by Australia’s latest Budget and its possible implications for real estate and the economy at large.

Telstra ((TLS)) is no longer included in the Asia-Pacific ex-Japan Focus List. Those shares are on a winning streak post interim report in February and now trading above consensus target.

Prospective dividend yields have fallen to 3.8% (FY26) and 4% (FY27), which is a good indication of how strong the telco’s performance has been, not only in 2026 but since early 2025.

Telstra’s removal leaves that list with only two remaining ASX representatives:

• BHP Group ((BHP))
• Lynas Rare Earths ((LYC))

Goodman Group ((GMG)) has been removed from the Asia Thematic Focus List. Those shares have recovered from circa $25 to beyond $30 in recent weeks.

FNArena’s consensus price target of $34.42 remains circa 11% above the current share price.

The Australia Macro+ Focus List no longer includes Seek ((SEK)), The Lottery Corp ((TLC)) or Xero ((XRO)).

In their place the following three have been added:

• Infratil ((IFT))
• Sigma Healthcare ((SIG))
• Santos ((STO))

The Australia Macro+ Model Portfolio no longer includes Qube Holdings ((QUB)), REA Group ((REA)), Seek, or Stockland ((SGP)).

Have been added instead:

• Ampol Ltd ((ALD))
• Infratil
• Paladin Energy ((PDN))
• SGH Ltd ((SGH))

Morgan Stanley’s view on Australia is not that dissimilar from T Rowe Price’s:

“We remain cautious on the outlook for the Australian economy given the combined impact of tightening policy conditions and sharper price and volume impact from the ongoing global fuel supply shock.”

No more RBA rate rises are expected. The central bank might well deliver its first rate cut in the second half already, if Morgan Stanley’s projections come to pass.

The good news is, Morgan Stanley’s updated target for the ASX200 –at 9250 for mid-2027– suggests potential for a double-digit total return (including dividends).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions.)  

P.S. I – All paying members at FNArena are being reminded they can set an email alert for my Rudi’s View stories. Go to My Alerts (top bar of the website) and tick the box in front of ‘Rudi’s View’. You will receive an email alert every time a new Rudi’s View story has been published on the website. 

P.S. II – If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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