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Tickers in this Article: PIO, FIW, TLVT, TRIT, GRC, NWPX, AMN, MPR, PHO
Despite the long-term trends of population growth and the growing need for clean potable water, many investors still ignore the commodity in their portfolios. However, as the world's population continues to expand at rapid rates, water's role in drinking, agriculture and industry will only increase, especially in emerging countries. It is in these developing nations that the need is greatest, and one Asian superpower is feeling the full effects of Mother Nature.

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Worst Drought in 50 Years

China offers much long-term promise for investors. Nevertheless, that growth seems muted in an environmental crisis. Typically, Southern China's Yangtze River receives flooding monsoon rains in the spring. These rains provide the much-needed water for not only drinking, but for many of China's rich rice-growing regions. However, the downpours have failed to materialize, and officials report that rainfall in Hubei, Jiangxi, Anhui, Jiangsu and Zhejiang are at their lowest levels in more than 50 years.

Droughts are not uncommon in China, but these water shortages have gradually worsened over the past decade. More than half of China's largest 660 cities continually face water shortages. The nation currently boasts more than 20% of the planet's people, but only commands 7% of the water reserves.

Poor-Quality Water Reserves

The majority of those water reserves are not exactly of the highest quality. Roughly 90% of them are located its cities' groundwater, and 75% of China's rivers and lakes are heavily polluted. According to the World Bank, China's available water per capita is just a quarter of the world average and the lowest of any large economy. Analysts estimate that by 2030, China will face a water deficit of nearly 201 billion cubic feet. As increased agricultural irrigation and water contamination continue to plague supplies, China will face a daunting task.

The Yangtze River is the most important watershed in the nation, supporting more than 400 million people. Beijing's recent efforts to stem the crisis highlight the sheer amount of money needed for water infrastructure and improvements. The government's various drought-relief programs have purchased and shipped in water tanks, pumps and generators to parts of Hunan and Hubei provinces. China has also begun the process of releasing water from the Three Gorges Dam. Perhaps its most ambitious project yet is a plan to divert the Yangtze River to the Yellow and Hai Rivers to provide water for Beijing and the rest of the North.


Playing the Growing Problem

China's water crunch is a perfect example of the severity of the global water problem. Analysts estimate that governments around the globe will spend more on water infrastructure over the next 20 years than on any other segment of the economy. Funds like the PowerShares Global Water (NYSE:PIO) or the First Trust ISE Water Index (NYSE:FIW) make ideal choices. However, there are plenty of individual picks for investors.

Technology is playing an ever-increasing role in water management. Water authorities are almost blind to their grids until there is a major problem or leak. Infrastructure software giant Telvent's (Nasdaq:TLVT) products control more than 60% of all the gas and oil moving through pipelines in the Western Hemisphere. This includes leak-detection applications. Chinese firm Tri-Tech (Nasdaq:TRIT) provides software/hardware to monitor and control municipal and natural water systems.

Pumps, Valves and Pipelines

Moving all of that water from one location to another will require a vast array of pumps, valves and pipelines. Gorman-Rupp (NYSE:GRC) manufactures a variety of industrial pumps and has been adding to its water business. Similarly, both Northwest Pipe (Nasdaq:NWPX) and Ameron International (NYSE:AMN) specialize in large-diameter pipeline systems used in municipality drinking water plants, hydroelectric power plants and wastewater treatment facilities.

Finally, treating polluted water is a paramount issue. Met-Pro (NYSE:MPR) manufactures pollution-control equipment for both industrial and municipal customers. The company also offers a 2.5% dividend.

Bottom Line

China's recent drought woes underscore a very real problem facing the world; the lack of clean water. For investors, the opportunity is great. As the world begins to spend large dollar amounts on water infrastructure and treatment, those companies in the sector will profit. The previous companies, along with funds like the PowerShares Water Resources (NYSE:PHO), make ideal choices to play the trend.

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