By: John Stepek
And yet, a basket of stocks related to this commodity has outperformed gold, oil and gas, and global stocks over the past ten years.
What is this miraculous substance?
Have we hit ‘peak water’?
We’ve covered water as an investment theme in MoneyWeek magazine on several occasions in the past. It may seem an odd choice – after all, water is not a globally traded commodity, like oil.
But in fact, it makes a lot of sense. There is always good profit potential in any area where there is an imbalance between supply and demand. You can make usually make good money from the companies working to correct that imbalance.
And with water, these two forces are more acute than in perhaps any other substance.
Demand is high and rising. Water is necessary for life. There’s no substitute. As the global population grows, and we all (hopefully) become wealthier, there will be more and more demand for it.
Meanwhile, supply is limited. Fresh water – water we can use – accounts for just 2.5% of all water in the world. And a big chunk of that is locked up in ice. So there’s actually not that much water to go around. The other problem is that the water often isn’t where it needs to be – ie where the people are. It’s surprisingly hard stuff to transport.
Bank of America Merrill Lynch reckons we may even have reached ‘peak water’. Now, ‘peak’ has become something of an investment world cliché. But you take their point. There’s a lot of stress on the water supply.
The UN reckons that around a fifth of the world’s population lives in areas where there is a physical shortage of water. Another quarter faces “economic water shortage”. This is where water is physically present, but the infrastructure isn’t there to get it from the source to the people who need it.
And this situation is only going to get worse. Between water pollution and depletion of underground aquifers, and the risks of extreme weather events becoming more frequent, the danger is that even as demand grows, supply is going to become more scarce.
In short, water poses a problem. And you can make money from the companies involved in solving this problem.