Three Ways to Trade the Coming Global Water Crisis

12/10/2010 12:01 am EST

Focus: ETFS

Both macro and microeconomic forces suggest that the global water sector is destined to see exponential growth, thus paving the path to opportunity for the following exchange traded funds.

  1. PowerShares Water Resource Portfolio (PHO), which boasts environmental services giant Veolia Environment (VE) and flow control equipment specialists Flowserve Corporation (FLS) in its top holdings.

  2. PowerShares Global Water Portfolio (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.

  3. 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.

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% 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 demand is set to rise by more than 30% 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 nations, 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 stages. As mentioned above, these three ETFs offer ways to capitalize on the water sector in the future.

By John Nyaradi of

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