How water shortages impact investing in Frontier Markets
There has been an intensity of focus in the media over the past month or so on water shortages across the world. The problem is not new, nor is it unknown. Water scarcity has been a challenge for much of the world for most of its history. However, the impact of water shortages is has only recently begun to affect areas that were previously abundant in water.
The examples are copious, but below we highlight a few of the most well-known:
Aral Sea
The Aral Sea was once half the size of Lake Superior, and was an engine of growth for the former Soviet Union. Straddling present-day Kazakhstan and Uzbekistan, the region is now almost entirely dry, and the sea has all but vanished. The desertification of this area was caused by a foolhardy Soviet plan to boost cotton production through irrigation, hundreds of kilometres away. Read more here.
Northeast China
Northeast China is a more nuanced example. The area was never abundant in water. However, with an increasing population, the government has grown desperate to supply water to a potentially restless population and a burgeoning economy. The Economist has an excellent article on the situation here.
India
India does not have enough water for its people. This TIME article from 2010 highlights the issue which has only worsened in the past three years. India is aware of the issue, but has done little in the way of improving the situation.
There are several other examples in the developed world, such as Chile, the Southwestern United States, and Australia. However, these countries have the means to invest in alternative solutions. That being said, 30mm people in the Southwestern US rely on the Colorado River, and there are strong sights that this will not last for much longer. For further information, see here.
There are a few reasons we chose to write about this topic. Firstly, any investment that is made in regions with water issues is wrought with potential pitfalls, if a stable water supply is not secured. As an example, Barrick Gold (the world’s largest gold producer), faces massive delays on its Pasqua-Lama project to water issues. Water can no longer be considered an afterthought for corporates investing around the world, and in particular for investors looking for opportunities.
As the Economist article highlights, “China is also planning to build around 450 new coal-fired power stations, burning 1.2 billion tonnes of coal a year. The stations have to be cooled by water and the coal has to be washed. The grand total is 9 billion tonnes of water. China does not have that much available.” Certain projects will be delayed, cancelled, or face significant cost overruns.
Below, you will find a list of countries by their freshwater supply per capita. Eliminating those that are developed economies, and you will find a who’s who list of countries with political instability; Egypt, Yemen, Mauritania, Palestine, Niger, Pakistan, Syria, etc. The only SIF30 countries to crack the top 50 are Gabon, Papua New Guinea, Peru, Bolivia, Paraguay, Mongolia and Cameroon. Many of the remaining SIF30 countries as you can see, are at the bottom of the pack, globally.
As mentioned this isn’t a new phenomenon, but it has not been discussed in detail from the perspective of Frontier Markets. If you are looking for a Global investment opportunity the S&P Global Water Index is a great place to start. See its details here. There is an iShares ETF based on this index as well as one offered by Guggenheim. This index has returned +26% this year, and 13.3% annually for the past 5 years; not bad.
Within Frontier Markets, this list of companies involved in some capacity with water, is of course a lot smaller. Here is the list of companies in SIF30 constituent countries.
Ticker | Short Name | Revenue 1Y ($mm) | 1Y Total Return | Country | Market Cap ($mm) | Price | P/E |
---|---|---|---|---|---|---|---|
KUPS MK Equity | KUMPULAN PERANGS | 104 | 1.755 | Malaysia | 366 | 0.73 | 20.16 |
PNH MK Equity | PUNCAK NIA HLD B | 820 | 1.581 | Malaysia | 437 | 1.07 | 6.47 |
000712 CH Equity | GUANGDONG GOLD-A | 17 | 1.044 | China | 1575 | 3.52 | 192.01 |
600874 CH Equity | TIANJIN CAP-A | 254 | 0.977 | China | 1709 | 1.45 | 13.02 |
600008 CH Equity | BEIJING CAP CO-A | 573 | 0.761 | China | 2559 | 1.16 | 27.99 |
SDCC BC Equity | SODECI | 128 | 0.621 | Ivory Coast | 101 | 111.75 | 10.61 |
600187 CH Equity | HEILONGJIANG I-A | 69 | 0.62 | China | 1196 | 0.82 | 71.86 |
H2O PM Equity | CALAPAN VENTURES | 4 | 0.605 | Philippines | 24 | 0.15 | 30.28 |
SALC MK Equity | SALCON BHD | 111 | 0.604 | Malaysia | 133 | 0.22 | 35.46 |
TTW TB Equity | THAI TAP WATER | 167 | 0.374 | Thailand | 1321 | 0.33 | 15.85 |
TTW-R TB Equity | THAI TAP WA-NVDR | 167 | 0.374 | Thailand | 1321 | 0.33 | 15.85 |
600168 CH Equity | WUHAN SANZHEN-A | 77 | 0.343 | China | 744 | 1.28 | 30.79 |
BTEC MK Equity | BRITE-TECH BHD | 7 | 0.328 | Malaysia | 13 | 0.05 | 13.33 |
TVEAT ET Equity | AS TALLINNA VESI | 69 | 0.305 | Estonia | 306 | 15.28 | 9.62 |
000685 CH Equity | ZHONGSHAN PUBLIC | 133 | 0.271 | China | 1482 | 1.9 | 19.53 |
601199 CH Equity | JIANGSU JIANGN-A | 88 | 0.239 | China | 582 | 2.49 | 24.85 |
900935 CH Equity | SHANG YOUNGSUN-B | 72 | 0.233 | China | 262 | 1.07 | 56.78 |
CI MK Equity | TALIWORKS CORP | 96 | 0.231 | Malaysia | 143 | 0.33 | 12.52 |
600461 CH Equity | JIANGXI HONGCH-A | 180 | 0.205 | China | 431 | 1.31 | 27.84 |
601158 CH Equity | CHONGQING WATE-A | 665 | 0.202 | China | 4796 | 1 | 13.53 |
MPI PM Equity | METRO PACIFIC IN | 712 | 0.184 | Philippines | 2940 | 0.11 | 18.57 |
AGUAS/B CI Equity | AGUAS ANDINAS-B | 808 | 0.136 | Chile | 3967 | 0.29 | 18.58 |
AGUAS/A CI Equity | AGUAS ANDINAS-A | 808 | 0.126 | Chile | 3967 | 0.66 | 18.58 |
IAM CI Equity | AGUAS METROPOLIT | 809 | 0.118 | Chile | 1825 | 1.8 | 16.74 |
PBAH MK Equity | PBA HOLDINGS BHD | 81 | 0.107 | Malaysia | 100 | 0.3 | 10.68 |
ESSBIOA CI Equity | ESSBIO SA-A | 248 | 0.058 | Chile | 485 | 0.03 | 21.38 |
ESSBIOB CI Equity | ESSBIO SA-B | 248 | 0.05 | Chile | 485 | 0.03 | 21.38 |
ESVAL/A CI Equity | ESVAL-A | 274 | 0.04 | Chile | 914 | 0 | 24.03 |
ESVAL/B CI Equity | ESVAL-B | 274 | 0.036 | Chile | 914 | 0 | 24.03 |
EASTW-R TB Equity | EASTERN WAT-NVDR | 126 | 0.033 | Thailand | 679 | 0.41 | 16.28 |
EASTW TB Equity | EASTERN WATER RE | 126 | 0.033 | Thailand | 679 | 0.41 | 16.28 |
ESSBIOC CI Equity | ESSBIO SA-C | 248 | -0.088 | Chile | 485 | 0.02 | 21.38 |
ESVAL/C CI Equity | ESVAL-C | 274 | -0.115 | Chile | 914 | 0 | 24.03 |
MWC PM Equity | MANILA WATER | 362 | -0.116 | Philippines | 1170 | 0.58 | 8.79 |
600283 CH Equity | QIANJIANG WATE-A | 112 | -0.122 | China | 357 | 1.25 | 160.36 |
SBSP3 BZ Equity | SABESP | 5462 | -0.183 | Brazil | 7395 | 11.07 | 8.05 |
SAPR4 BZ Equity | SANEPAR-PREF | 1109 | -0.191 | Brazil | 1674 | 3.15 | 8.33 |
PWSA KH Equity | PHNOM PENH WATER | 28 | -0.194 | Cambodia | 108 | 1.24 | 13.59 |
CSMG3 BZ Equity | COPASA MG - ORD | 1815 | -0.215 | Brazil | 1992 | 16.72 | 9.71 |
VDBLRA BK Equity | VODOVOD AD BANJA | 10 | -0.231 | Bosnia And Herzegovina | 12 | 0.35 | 89.81 |
600323 CH Equity | NANHAI DEVELOP | 154 | China | 971 | 1.67 | ||
SAPR3 BZ Equity | SANEPAR | 1109 | Brazil | 1674 | 3.71 | 8.33 | |
SAPR2 BZ Equity | SANEPAR-RTS | 1109 | Brazil | 1674 | 0.01 | 8.33 | |
ANGS RU Equity | ARKTIKNEFTEG-BRD | 239 | Russia | 58 | 1100 | 28.82 | |
CWCB BM Equity | CONS WATER CO-OR | 66 | Cayman Islands | 45 | 3.04 | 43.25 | |
FVC-R TB Equity | FILTER VISION | 8 | Thailand | 15 | 0.07 | 20.55 | |
FVC TB Equity | FILTER VISION PC | 8 | Thailand | 15 | 0.07 | 20.55 |
Also, if you are interested in investing in individual companies within the S&P Global Water Index, see their information below. This is as of October 30, 2013.
Ticker | Short Name | Revenue 1Y ($mm) | 1Y Total Return | Country | Market Cap ($mm) | Price | P/E |
---|---|---|---|---|---|---|---|
UENV SP Equity | UNITED ENVIROTEC | 159.1107322 | 1.31336 | Singapore | 403.938624 | 0.679172 | 13.614263 |
371 HK Equity | BJ ENT WATER | 656.1861662 | 0.9455965 | Hong Kong | 3710.204416 | 0.439796 | 28.042765 |
257 HK Equity | CHINA EVERBR INT | 578.7697567 | 0.9231809 | Hong Kong | 3973.509632 | 0.98019 | 25.797691 |
MWA US Equity | MUELLER WATER-A | 1120.8 | 0.8264561 | United States | 1358.315008 | 8.58 | 37.304348 |
VIE FP Equity | VEOLIA ENVIRONNE | 33222.469872 | 0.7762968 | France | 9534.439424 | 17.370853 | 53.001751 |
6361 JP Equity | EBARA CORP | 4845.87551 | 0.7153334 | Japan | 2507.618304 | 5.411741 | 17.041079 |
FCC SM Equity | FCC | 11540.106865 | 0.7003058 | Spain | 2923.948032 | 22.968361 | |
PNR US Equity | PENTAIR LTD-REG | 7313.431936 | 0.6614928 | Switzerland | 13382.900736 | 67.150002 | 28.574858 |
IEX US Equity | IDEX CORP | 1994.348 | 0.6579697 | United States | 5627.998208 | 68.940002 | 23.20409 |
SEV FP Equity | SUEZ ENVIRONNEME | 19337.588625 | 0.6446878 | France | 9066.948608 | 17.770184 | 15.586783 |
CCC US Equity | CALGON CARBON | 552.716 | 0.6033655 | United States | 1087.88544 | 20.01 | 32.470905 |
AALB NA Equity | AALBERTS INDS | 2602.770905 | 0.5935069 | Netherlands | 3346.867968 | 30.266459 | 18.544891 |
GRC US Equity | GORMAN-RUPP CO | 388.715 | 0.5701838 | United States | 865.529152 | 40.950001 | 28.048733 |
021240 KS Equity | COWAY CO LTD | 1770.045988 | 0.5614732 | South Korea | 4416.610816 | 57.338799 | 47.908443 |
WTS US Equity | WATTS WATER TE-A | 1464.4 | 0.5483442 | United States | 2042.537728 | 57.93 | 25.712383 |
XYL US Equity | XYLEM INC | 3773 | 0.4434578 | United States | 6152.682496 | 33.48 | 21.789711 |
IP IM Equity | INTERPUMP SPA | 684.2096545 | 0.4273983 | Italy | 1218.155136 | 11.188125 | 16.312674 |
ARCAD NA Equity | ARCADIS NV | 3331.742292 | 0.4170845 | Netherlands | 2415.531776 | 32.283764 | 17.627819 |
SGL SP Equity | SOUND GLOBAL LTD | 471.5416443 | 0.3960396 | China | 733.664064 | 0.570019 | 10.971208 |
DHR US Equity | DANAHER CORP | 18826.500608 | 0.3937938 | United States | 50247.192576 | 72.040001 | 21.525522 |
HLMA LN Equity | HALMA PLC | 978.6324936 | 0.3792225 | United Kingdom | 3395.227392 | 8.981452 | 22.164944 |
GEBN VX Equity | GEBERIT AG-REG | 2064.000968 | 0.3555776 | Switzerland | 10663.908352 | 282.125702 | 23.862133 |
AWR US Equity | AMER STATES WATE | 476.309 | 0.339734 | United States | 1106.112896 | 28.620001 | 18.845165 |
ALFA SS Equity | ALFA LAVAL AB | 4487.772421 | 0.317394 | Sweden | 9789.222912 | 23.337883 | 20.430477 |
FELE US Equity | FRANKLIN ELEC CO | 940.979008 | 0.310798 | United States | 1812.286464 | 38.119999 | 22.102446 |
WTR US Equity | AQUA AMERICA INC | 777.736 | 0.2860984 | United States | 4455.702528 | 25.35 | 21.320753 |
ROR LN Equity | ROTORK PLC | 849.8360806 | 0.2786374 | United Kingdom | 4000.436992 | 46.080151 | 26.527037 |
BMI US Equity | BADGER METER INC | 327.435 | 0.2688626 | United States | 758.39648 | 53.25 | 31.82785 |
HER IM Equity | HERA SPA | 5992.664355 | 0.2584061 | Italy | 2922.513664 | 2.073762 | 9.413238 |
KRA1V FH Equity | KEMIRA OYJ | 2942.301218 | 0.2265603 | Finland | 2569.26464 | 16.579081 | |
CWT US Equity | CALIF WATER SRVC | 565.664016 | 0.2087872 | United States | 1030.577856 | 21.559999 | 23.131905 |
6370 JP Equity | KURITA WATER IND | 2039.843346 | 0.2015782 | Japan | 2580.488192 | 21.738688 | 26.490971 |
AWK US Equity | AMERICAN WATER W | 2873.130048 | 0.1998126 | United States | 7600.848384 | 42.82 | 20.811604 |
SVT LN Equity | SEVERN TRENT | 2894.813613 | 0.1892886 | United Kingdom | 7201.446912 | 30.141689 | 19.601101 |
AEGN US Equity | AEGION CORP | 1056.1 | 0.1518047 | United States | 839.802112 | 21.700001 | 15.555556 |
270 HK Equity | GUANGDONG INVEST | 1016.051481 | 0.112158 | Hong Kong | 5503.26784 | 0.882171 | 10.73952 |
ITRI US Equity | ITRON INC | 1948.537024 | 0.1106238 | United States | 1775.67808 | 45.580002 | 40.596714 |
CTWS US Equity | CONN WATER SVC | 86.224 | 0.09449871 | United States | 358.384384 | 32.5 | 22.090586 |
202 HK Equity | INTERCHINA HLDGS | 47.78311159 | 0.09090913 | Hong Kong | 423.360288 | 0.069645 | 3.545285 |
UU/ LN Equity | UNITED UTILITIES | 2585.675967 | 0.07895165 | United Kingdom | 7822.513152 | 11.471837 | 17.246376 |
TTEK US Equity | TETRA TECH INC | 2029.54304 | 0.06215137 | United States | 1716.896384 | 26.66 | 42.317459 |
SUN SW Equity | SULZER AG-REG | 4249.246053 | 0.04134415 | Switzerland | 5232.882176 | 152.729721 | 16.930693 |
CMP US Equity | COMPASS MINERALS | 1009.3 | 0.00791733 | United States | 2528.509952 | 75.519997 | 23.613873 |
LNN US Equity | LINDSAY CORP | 690.848 | 0.005155889 | United States | 965.846272 | 75 | 13.711152 |
PNN LN Equity | PENNON GRP PLC | 1898.367812 | -0.00757139 | United Kingdom | 4107.596288 | 11.086228 | 93.2659 |
ANDR AV Equity | ANDRITZ AG | 6920.775168 | -0.02995594 | Austria | 6332.657152 | 60.890942 | 25.125 |
LAYN US Equity | LAYNE CHRISTENSN | 971.082016 | -0.100551 | United States | 389.210592 | 19.59 | |
SBS US Equity | SABESP-ADR | 5462.389776 | -0.2045297 | Brazil | 7340.895744 | 10.82 | 8.046982 |
ICL IT Equity | ISRAEL CHEMICALS | 6566.028928 | -0.332622 | Israel | 10431.19616 | 8.209784 | 8.563035 |
NES US Equity | NUVERRA ENVIRONM | 531.244008 | -0.3361111 | United States | 618.661696 | 2.39 |
The key takeaways we would like you to take from this article are:
- Water shortages are real and acute in Frontier Markets
- When investing in a company that could be impacted by water shortages, look to see their plan for tackling water issues (recycling, secure water supply, solid government agreements, fixed price for water, etc.). This issue can make energy, mining, and industrial projects disaster or completed successes.
- Keep an eye out for companies that are innovating in the area of water conservation or desalination. These companies will benefit from growth in Frontier Markets, as their water consumption approached usage in developed countries.
Further reading:
Australia’s dynamic water companies
Innovative technologies within the US
5 Companies for a Thirsty World