Just add water
Ever asked yourself what life would be like without the basic needs? Water, food and oxygen are all natural luxuries we take for granted, yet what happens when one of these becomes scarce? Whilst oxygen and debatably food are well in abundance for the time being, fresh water is increasingly becoming the future’s scarce resource.
Whether beliefs of global warming are founded on human activity or not, the reality is that it exists and as the Earth’s climate changes, so are the world’s natural resource supplies.
Oil and gas were previously the feared scarce resources of the future, prior to the discovery of proven reserves that are set to cater humanity for the next handful of decades. Such discoveries in fact led to the supply glut and subsequent commodity crisis seen since 2014. Oil and gas have substantially recovered from the lows of the energy crisis but remain volatile as uncertainty continues to rattle the sector’s future.
Today’s Opec production meeting has in fact led to a drop in oil prices this week on renewed uncertainty, following weeks of optimism of a deal being met.
Water as an investment opportunity isn’t the first idea that comes to mind when people want to give the markets a go. Yet, since the year 2000, judging on the Pictet Water Fund’s performance, an annualized return of ca. 6% has been recorded, with consistent gains year on year despite turns in economic cycles post 2008.
Many industries and households are increasing their water usage needs. Add increased global pollution, floods and rising sea levels to the list and you have yourself a nice upcoming pickle to solve to cater for this increased water usage and demand.
Many global areas today still struggle with access to freshwater supplies and with the global population ever increasing (up to 33% by 2050, based on UN research), this should result in increased demand for food and water supplies.
The problem as such isn’t the availability of water in itself. Some countries have more scarcity of water than others despite having river basins run through their country. Yet large population increases and environmental factors will result in mass displacements of people to remote areas or even urban cities, and will most certainly put added strain on water infrastructure and treatment companies, in providing water accessibility.
This would increase the disparity between demand and supply. As per the basic laws of economics, as demand increases more than supply, prices will increase and it is these price increase expectations in the sector that investors today are hoping to capture when investing in water.
Water companies are important future players for the supply of water facilities and accessibility to a substantial amount of countries at the front of population growth and global warming risks.
Many Middle Eastern countries for example, are already experiencing droughts and ever increasing abnormally high temperatures and have invested heavily in water supplies needed for agricultural use. As global temperatures increase, droughts will too and so will agricultural water needs for one.
Hence, should you be having trouble deciding where to invest in these volatile markets, the answer may well just be in your cup of coffee ….. Just add Water!
This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.