Opportunities In The Emerging Market's Water Crisis

By Aaron Levitt | August 23, 2010 AAA

Since the 1950s, the planet's population as nearly doubled. However, water consumption and usage has nearly tripled. The globe is facing a paramount dilemma; providing enough water for is growing population. Water is essential to human survival. While we can find substitutes for our oil addiction, finding a water substitute is impossible. Analyst's estimate that demands for clean potable water will grow about 6% annually.
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Emerging Markets Leading Usage
The World Bank reports that 80 countries now have water shortages that threaten the health of their citizens and economies. Most of these pressures are being felt by emerging market nations. More than half of China's largest 660 cities continually face water shortages. The nation currently boast 20% of the planet's people, but only commands 7% of the water reserves. 90% of those reserves in its cities' groundwater and 75% of its rivers and lakes are heavily polluted. Analysts estimate that, by 2030, China will face a water deficit of nearly 201 billion cubic feet. Similarly, many other nations on the Asian continent face comparable threats. Singapore needs to import nearly all of its water needs from neighboring Malaysia. In India, where agriculture accounts for 80% of the fresh water use, nearly 1.2 billion people will exhaust their water supplies by 2050.

Moving throughout the developing world, the tales are the same. In Latin America, less than 20% of the populations have access to adequate sanitation systems. Mexico City with its 23 million residents has outgrown its current water and sanitation system. In Honduras, many people are forced to travel numerous miles to for pay for a day's supply of clean water.

Worthy of Investment
Water scarcity with relation to emerging market population growth is one of the preeminent problems facing our planet. Access to clean water for health and food production remains one of the better long term investment themes. Companies that develop sanitation systems, filters and water infrastructure should continue to prove themselves through the upcoming years. Investors with timelines long enough should allocate some capital towards the sector. Both the Claymore S&P Global Water (NYSE:CGW) and PowerShares Global Water (NYSE:PIO) include holdings in developing markets and could be used as a starting point for investment. However, many of the brightest opportunities may be in individual equities.

China is going to great lengths to secure the natural resources it needs for its people, whether that be copper, oil or water. These include a recent plan to divert the Yangtze River to the Yellow and Hai Rivers to provide water for Beijing and the rest of the North. Two Chinese-based water companies that have been seeing their fortunes rise as the tide are Tri-Tech (Nasdaq:TRIT) and Duoyuan Global Water (NYSE:DGW). Tri-tech provides software and hardware to monitor and control municipal and natural water systems. Duoyuan provides pollution control and waste water treatment systems. Both have recently reported good earnings and should continue to grow as China addresses its water needs.

Carbon filters are some of the most effective methods at removing chlorine, sediment and other volatile organic compounds from water. Calgon Carbon Corporation (NYSE:CCC) is one of the largest manufacturers of activated carbon and filtration systems in the world. The company currently has a market share between 25 to 33% in UV-treated drinking water in China.

Finally, Veolia Environment (NYSE:VE) is quickly becoming the giant in the water sector. The company provides waste water and desalination operations in more than 66 countries including emerging market hotspots in the Middle East, Asia and Eastern Europe. Shares of the company currently yield an impressive 5.20%.

The Bottom Line
Analysts estimate that only Canada currently has enough water resources to sustain itself for the next 200 years. Water scarcity and increasing demand caused by population growth is one of the most compelling long-term portfolio themes. Significant investment will be needed by nations in order to keep their citizens healthy and fed. The proceeding water ETFs and stocks such as pump maker Flowserve (NYSE:FLS) are just the tip of the iceberg, with regards to this sector. Investors would be wise to allocate some funds to water investment. (To learn more, see Water: The Ultimate Commodity.)

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