(Bloomberg) — The outlook for the strongest El Niño cycle ever recorded is prompting a growing number of money managers to rush to prepare their portfolios for the disruption they say is on the way. The climate phenomenon associated with the warming of the equatorial Pacific Ocean is fueling droughts and floods that damage crops. Food commodity prices are rising, and economists are revising inflation estimates and deficits. These impacts are now feeding markets already stressed by high debt levels and rising borrowing costs.
No corner of the global asset markets will be fully shielded from the current El Niño cycle, says Katie Self, portfolio manager at Pictet Asset Management.
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“It has become almost an absolute certainty that this will be the most extreme El Niño we’ve ever had in history,” and figuring out how to navigate future disruptions is now “definitely” a priority, Self said in an interview.
Man Group, the world’s largest publicly traded hedge fund manager, warned in July that everything from network infrastructure to metals and fertilizers could fall under El Niño’s lens. T. Rowe Price says it has turned to customized models to shield its $165 billion portfolio of debt and emerging market equities from El Niño. And a string of boutique hedge funds are now building entire investment theses around the climate cycle as it intensifies, Bloomberg has previously reported.
A major concern is that El Niño will impact markets already grappling with a range of stresses, including rising debt burdens, higher interest rates and sudden investor selling.
“The current macro backdrop differs from earlier phases of El Niño, with higher rates, debt and volatility,” wrote analysts Kamesh Korangi and Rose Choy in a note this week from the Anthropocene Fixed Income Institute. The duo identified Indonesia, Brazil and Colombia as the most vulnerable sovereigns and highlighted the potential for “global spillovers.”
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Although El Niño is associated with the Pacific, investors need to understand that “the indirect effects are entirely global,” says Self, who co-manages the $5.1 billion Pictet Global Environmental Opportunities fund. “There isn’t a single place in the world that doesn’t feel some form of indirect effect from El Niño.”
Strategies to navigate upcoming shocks include bets on interest rates tied to an inflation uptick fueled by El Niño. The impact of the climate phenomenon on energy markets is also emerging as a key trading theme for the coming months.
“Winter is the season when these forces—climate, geopolitical and structural—are likely to converge more intensively,” said Zulfiqar Ali, founder and chief investment officer of ZAMS Asset Management’s energy commodities hedge fund, in an interview last month. This creates an “exceptionally rich alpha environment” for managers “with the analytical edge and risk discipline to navigate it.”
At Pictet, Self says she and her team are looking for companies that design technologies to help cope with El Niño-fueled extreme weather patterns. Examples include providers of smart irrigation equipment and solutions that extend plant root systems to help in drought conditions, as well as stormwater drainage systems and flood protections, she says.
“El Niño is an amplifying factor,” Self said. The climate cycle itself is not new, but “now it’s happening on this much hotter baseline.” These two forces “will interact, interrelate and make things substantially worse.”
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The physical consequences of El Niño are already dominating headlines. Southeast Asian countries have been grappling with extreme air pollution caused by wildfires, India faced its weakest monsoon in more than a decade, and across South America people now face severe floods and droughts, disrupting their ability to farm.
For investors whose strategies are exposed to land, agriculture or forests in developing countries, the risks are particularly pronounced.
Jonathan Dean, who leads the natural capital strategy in BNP Paribas Asset Management’s alternatives unit, says he is closely monitoring carbon credit projects as El Niño fuels wildfires like those plaguing Indonesia.
The risk of wildfire triggered by El Niño “has drawn attention” to the poor adaptation of carbon credit projects, he said.
“It has always been a core part of our underwriting to understand potential loss rates of a project, doing climate research beforehand to be able to identify risk factors within a project’s region,” he said.
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The private equity strategy Dean oversees, which has more than $560 million in commitments from the International Finance Corporation and other development finance institutions, has been working with a project developer in Indonesia to “maximize the opportunity,” he said. Insurance and remote sensing technologies are part of a toolkit that fund managers can consider to help assess risks in nature-based projects, he added.
The types of resilience or adaptation needed “are very broad,” said Self of Pictet. “It is a truly comprehensive and global phenomenon.”
(Updated with additional BNP comment, context in the 15th and 16th paragraphs.) © 2026 Bloomberg L.P.
