Climate-related catastrophes could be the next type of disasters to strike, says JPMorgan

Water from the Pearl River floods this northeast Jackson, Miss., home and car, Sunday, Feb. 16, 2020. Authorities believe the flooding will rank as third highest, behind the historic floods of 1979 and 1983.

Rogelio V. Solis | AP

Pandemics and climate-related catastrophes aren’t only similar for the havoc they wreak on society. The uncertainty around these types of events means populations and investors alike do not adequately prepare for them, JPMorgan said in a recent note to clients. And with climate-related disasters expected to become both more frequent and intense, the firm identified the best ways for investors to hedge their exposure.

“Both are global and existential threats sometimes neglected by policymakers and ignored by investors because they seem intangible or remote until they actually strike,” said John Normand, JPMorgan’s head of cross-asset fundamental strategy. He noted that following disasters measures are usually implemented to prevent recurrence, but that little action is taken “until a catastrophe crystalizes a wildcard.”

JPMorgan said that investors can look at the crisis wrought by the coronavirus as indication of what could potentially happen should a climate disaster take place. In the U.S. more than 30 million people have now filed for unemployment in the last six weeks, and as states begin to reopen, economists have warned that the road to recovery will be a long one.

Given the uncertainty around when a climate catastrophe could hit, the firm said structural hedges should be focused on “instruments with an asymmetric bias in coming years.”

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