J.P. Morgan: El Niño affects A-shares; nitrogen fertilizer exports and outdoor consumption may benefit

How long will the weather changes last?

Experts invited by JPMorgan expect this El Niño to peak around the end of December 2026 and the beginning of January 2027, turn neutral in the summer of 2027, and potentially shift to La Niña in the fall. Even if sea-surface temperatures enter a neutral phase, the atmospheric response still lags by about three months, and pressure on agriculture from dry, warm weather may persist into 2027.
Compared with climate norms for 1991–2020, experts expect China to be generally warmer this winter, but with regional differences in precipitation: wetter in the north and east, and drier in the south and west. Sudden stratospheric warming could change this outlook and bring stronger cold-air outbreaks.

Experts expect dry, warm weather from winter through the following spring and summer to increase pressure on agricultural production and fertilizer use. If the Yangtze River basin sees a combination of low rainfall and high temperatures similar to past events, hydropower generation could also decline.
Natural gas is an important feedstock for urea production overseas, and rising liquefied natural gas prices will increase its costs. About 77% of China's urea is produced using coal, so its cost is more closely tied to domestic coal prices.
This difference could widen the price gap between domestic and overseas urea, creating export opportunities for cost-competitive coal-based urea producers. At the same time, experts believe domestic urea supply is ample and prices remain weak.

JPMorgan's consumer analyst believes winter clothing will be less affected than feared, while outdoor activities and sun-protection consumption have potential upside. Experts expect cold, dry weather to hinder outdoor activities less than cold, wet weather; demand for beauty products also depends on actual UV exposure and consumer behavior.
Weather anomalies could also push up raw-material costs. JPMorgan believes the overall impact on A-share consumer companies will be limited: discretionary and consumer staples companies have average inventory turnover periods of 130 days and 237 days, respectively, which can cushion the immediate impact of cost changes.
Experts also expect dry, warm weather in spring and summer to potentially tighten the supply of raw materials for duck and goose farming. Corn, soybeans and coffee are among the commodities most affected by climate, but weather and production outlooks vary across growing regions.

The bank maintains its positive view on the CSI 300: consensus forecasts for earnings per share over the next 12 months imply year-on-year growth of 19%, corresponding to a price-to-earnings ratio of 11.5 times, about 0.5 standard deviations below the long-term median. However, the bank believes the global liquidity-tightening cycle is putting downward pressure on valuations.
In terms of allocation, the bank maintains a barbell strategy, with growth themes such as AI infrastructure, CXO and innovative drugs at one end, and high-dividend assets at the other. Relative to the MSCI China Index, JPMorgan prefers the CSI 300, citing, among other reasons, its greater exposure to AI infrastructure.