El Nino Reality Check Hits Malaysia's Plantation Stocks

Malaysia's plantation stocks are facing a reality check as investors wait for evidence that El Nino will translate into tighter supply and stronger earnings.

CPO prices have already risen sharply this year, with the active futures contract reaching RM4,780 a tonne, up almost 19% year-to-date. However, pure upstream planters may be entering a structurally tighter period, benefiting from high operating leverage to palm oil prices.

Tradeview Capital's Nixon Wong said 'pure upstream names usually re-rate first because investors are buying operating leverage.' But further upside for plantation stocks would increasingly depend on actual production performance at individual companies.

Industry veteran Joseph Tek Choon Yee warned that the impact of El Nino on oil palm production may not be immediate, with some damage appearing only in production figures months later.