The Trade Idea: After last week’s development in OIL’s Quantitative Gravity, I would avo...
How to Profit Come Hell or High Water
06/13/2012 9:30 am EST
The research team at Briefing.com is conducting thorough studies on water, the world’s emerging “new” commodity trend, identifying nine companies best positioned to profit from inevitable price increases.
Water is a vital resource: life on Earth cannot exist without it. Water is also a commodity, although it is not often thought of as such. It certainly does not trade like one. While the current super cycle has propelled the costs of energy, industrial metals, and agricultural commodities higher, the price of water has remained relatively cheap.
Briefing Research believes the commodity super cycle will continue based on the impact of developing market demand and the complacency surrounding the inevitability of production growth. That is the premise behind our trading and investment theme: for all commodities, there is a finite supply, and the same is true of water.
Concerns over growing water scarcity and shortages, including the misuse of fresh water and competitive usage, have culminated in increasing pressure related to water resources globally.
If fresh water supplies and humanity were evenly distributed across the land, water resources would not be an issue, according to the Pinsent Masons Water Yearbook 2011-2012. However, sources of water supply tend to be mismatched with regard to areas of need (think the MENA region and highly populated areas of Asia). The point is exacerbated by supply issues, including rising pollution, the loss of “watersheds,” drying aquifers, and aging infrastructure in developed markets.
Demand is also on the rise.
The global population continues to increase while agriculture is expanding and urbanization and industrialization cycles continue in emerging markets. All of these factors could put pressure on water supplies and water prices in the long run.
Global leaders have been focusing on water for decades, as evidenced by studies from the United Nations and the World Bank. Investment professionals and the media alike are now increasingly watching water. The subject has already garnered a special report from The Economist and a Web site devoted to the topic by Fidelity.
Mutual funds and ETFs have also been created that solely target investing in water. As part of our ongoing thematic commodity research, we are reviewing water supply and demand factors, outlining an industry that could begin being pressured by higher prices.
But water is thought of more as a public good than a commodity for individual traders and investors. It certainly does not trade like a commodity, remaining at low rates while prices of energy, industrial metals, and agricultural commodities have all surged over the last decade. However, the time of discounting water may be at an end.
Here is why:
Water has become a recent topic of conversation in the marketplace thanks to some high-profile events, such as the proposed expansion of the Keystone XL Pipeline over the US’ largest aquifer. Concerns over growing water scarcity and shortages, including the misuse of fresh water and competitive usage, have culminated in increasing pressure related to water resources globally.
Water consumption is expected to increase by 40% over the next two decades, accelerating faster than the global population due to an expansion in agriculture and the ongoing urbanization and industrialization in emerging markets. At the same time, rising pollution, the loss of “watersheds,” drying aquifers, and aging water infrastructure in developed markets will limit supply.
As part of our ongoing thematic commodity research, we are reviewing water supply and demand factors, outlining an industry that could begin being pressured by higher prices. Within this framework, our analysis has yielded nine publicly traded companies we feel are best positioned to benefit from this long-term investable trend in water.
By the Research Team at Briefing.com
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