Precious elixir of life: Fighting the water shortage: How investors can make money from it | message
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by Emmeran Eder, Euro am Sonntag
D.he pandemic has mastered Taiwan more than any other country on earth. But the island state is in other difficulties. For the first time in more than 50 years no typhoon passed over the country in the previous year. These eddy currents usually fill the island’s water reservoirs with their rain.
The result is that many of the country’s water reservoirs are only 15 percent full. This has prompted the government to prepare rationing measures and to urge citizens and companies to save massive amounts of water. As early as 2015, due to a severe drought, the water supply to apartments was severely limited and restrictions imposed on industrial companies.
Lack of water threatens chip exports
That has global implications. Because Taiwan is one of the largest chip exporters with around ten percent of the world market. About 100 liters of water are needed to make a chip. Due to the high demand for chips from the auto and entertainment industries and in view of the drought, some companies are already having their water delivered by truck. “A prolonged drought could have repercussions on the entire global economy,” fears Paul Buchwitz, manager of DWS Invest Global Equities Fund. Then the current shortage of chips in the auto industry would only be a foretaste. Especially since South Korea, which produces 15 percent of the global chips, has been suffering more and more from drought for several years.
In addition, new forms of drive such as electric cars or hydrogen-powered vehicles require more chips than conventional cars. Up to 70 liters of water have to be used for one liter of synthetic fuel made from green hydrogen, i.e. from renewable energies.
The examples show that the technologies of the future will require considerably more water for industrial use than before. Industry has already been the number one consumer ahead of agriculture and households in developed countries. Worldwide, however, agriculture needs most of the liquid, especially for food production. The United Nations (UN) therefore expects that water demand will exceed the available water supply by 40 percent by 2030.
In addition to drought, the high population growth, climate changes and increasing pollution of the water are also responsible for this. Extreme weather events lead to increased droughts that aggravate water scarcity or to floods that contaminate the water. Already around four fifths of global wastewater is not treated, especially in developing countries, which can trigger diseases and epidemics.
Damaged infrastructure in the USA
The UN aims to achieve basic supplies of clean water and sanitation for all people by 2030. The cost of this is estimated at 114 billion US dollars. Clean water and wastewater also play an important role in the Paris climate targets.
Investments in water protection are also moving more into the focus of the new US administration than in their predecessors Donald Trump. There are many regions in the USA with poor water infrastructure. “The water supply networks are often damaged and have to be repaired because millions of liters of water seep away through leaks,” says Justin Winter, portfolio manager at Impax Asset Management, describing the problems.
In order to counteract bottlenecks, in addition to limiting global warming, technological know-how in the areas of water extraction and storage, water infrastructure and efficiency is essential. Examples of this are leak detection in pipes, modern irrigation systems in agriculture, which can greatly reduce water consumption, and innovative systems for seawater desalination. “The also creates completely new possibilities digitalization. This means that water can be used much more efficiently in the future, “says Winter. The global investment market is estimated at over 500 billion US dollars by 2050.
Companies that are active in the sector can earn a lot in the next few years. Private equity firms specializing in water achieve profit margins of 20 to 25 percent in Australia, where the water industry is completely privatized.
For more than a decade, the stocks of companies involved in water supply, purification, storage and infrastructure as well as more efficient use of liquid have been outperforming the stock market average. The blue chips in the water industry are also less volatile than the overall market.
Numerous small innovative companies
However, medium-sized and smaller companies are also represented in the sector, which offer innovative solutions with the help of technological know-how. The shares of these high-tech companies fluctuate more, but also have higher price opportunities.
Since the crash last year, global water stocks have outperformed the MSCI World stock index on average, but have lagged behind other sustainable sectors: solar, wind and hydrogen are currently in vogue. Therefore, stocks in this sector are particularly suitable as a deposit supplement for long-term investors who aim for steady price returns.
It is advisable to diversify the investment broadly across numerous companies in the industry. In addition to large water suppliers, smaller tech companies with a lot of potential but also risk should be represented. Investors cover the segment well with ETFs and certificates (see investor info). Anyone with a long investment horizon should have a lot of fun with water stocks and satisfy their thirst for returns. Because one thing is certain – water remains vital and an important topic for the future.
From 1980 to 2000, global water consumption in industry rose only slightly. Since then, there has been a strong upward trend. There are two main reasons for this: on the one hand, the rise of Asian countries such as China and India to become industrialized countries and, on the other hand, the development of innovations such as smartphones or artificial intelligence, the production of which requires a lot of liquid.
The paper contains 42 companies worldwide from the sectors of water abstraction, storage and infrastructure as well as efficient water use such as Veolia (France) or Advanced Drainage Systems (USA). The focus is on North America. The composition is constantly checked. Securities are exchanged according to criteria such as liquidity, sector affiliation or potential returns. The certificate has increased by 49 percent since it was issued in mid-2019.
The ETF of the British asset manager tracks the Solactive Clean Water Index and contains 66 companies that provide technical, digital or utility services in the water business around the world. A title may have a maximum of 15 percent share; the weighting takes place every six months. Investments are primarily made in the USA, followed by Europe and Asia. The top positions are the infrastructure company Atkore and Advanced Drainage Systems (both USA). No currency hedging.
Image sources: Istockphoto