Both macro and microeconomic forces suggest that the global water sector is destined to see exponential growth paving the path to opportunity for the PowerShares Water Resources (PHO), the PowerShares Global Water (PIO) and the Guggenheim S&P Global Water (CGW).
From a macro perspective, incomes in developing nations are expected to rise and populations around the world are expected to continue to expand pushing up demand for water. In fact, at current growth rates, it is expected that demand for water will grow by nearly 6 percent annually. This growth is expected to be most prevalent in emerging Asia, where India is expected to see its water demand more than double and China’s to rise by more than 30 percent over the next 20 years.
Further price support in the essential commodity is likely to be driven by a deficiency in supply. Of the water that can be found around the world, a mere 1% can be used for agricultural purposes and human consumption. Additionally, research suggests that soil moisture levels on Earth are declining which could potentially lead to depletion in fresh water tables around the world.
Global supply constraints are further being enhanced due to rapid growth that has been seen in Asian nation’s which has lead to contamination of rivers and lakes and polluted groundwater. In fact, the World Bank estimates that China’s growth is expected to result in a supply shortfall of nearly 200 billion cubic feet within the next two decades.
In a nutshell, a monumental supply and demand imbalance is developing in the water sector which will likely result in water scarcity and force an influx of investment into the sector on both the domestic and international stage. As mentioned above, some ways to capitalize on the water sector include the following:
- PowerShares Water Resources (PHO), which boasts environmental services giant Veolia Environment (VE) and flow control equipment specialists Flowserve Corporation (FLS) in its top holdings.
- PowerShares Global Water (PIO) boasts French-based Suez Environment, which specializes in producing, distributing, treating, and recovering water as well as wastewater treatment specialists Kemira Oyj in its top holdings.
- Guggenheim S&P Global Water (CGW) holds Swiss-based Geberit AG, which specializes in water sanitary systems and the transportation of water through piping systems.
Although an opportunity seems to exist in the global water sector, it is important to consider the inherent risks that are involved with investing in commodity driven securities. To help protect against these risks, the use of an exit strategy which identifies specific price point at which a downward price pressure is likely to be seen is important. Such a strategy can be found at www.SmartStops.net.
Disclosure: No Positions