How water shortages impact investing in Frontier Markets

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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.

TickerShort NameRevenue 1Y ($mm)1Y Total ReturnCountryMarket Cap ($mm)PriceP/E
KUPS MK EquityKUMPULAN PERANGS1041.755Malaysia3660.7320.16
PNH MK EquityPUNCAK NIA HLD B8201.581Malaysia4371.076.47
000712 CH EquityGUANGDONG GOLD-A171.044China15753.52192.01
600874 CH EquityTIANJIN CAP-A2540.977China17091.4513.02
600008 CH EquityBEIJING CAP CO-A5730.761China25591.1627.99
SDCC BC EquitySODECI1280.621Ivory Coast101111.7510.61
600187 CH EquityHEILONGJIANG I-A690.62China11960.8271.86
H2O PM EquityCALAPAN VENTURES40.605Philippines240.1530.28
SALC MK EquitySALCON BHD1110.604Malaysia1330.2235.46
TTW TB EquityTHAI TAP WATER1670.374Thailand13210.3315.85
TTW-R TB EquityTHAI TAP WA-NVDR1670.374Thailand13210.3315.85
600168 CH EquityWUHAN SANZHEN-A770.343China7441.2830.79
BTEC MK EquityBRITE-TECH BHD70.328Malaysia130.0513.33
TVEAT ET EquityAS TALLINNA VESI690.305Estonia30615.289.62
000685 CH EquityZHONGSHAN PUBLIC1330.271China14821.919.53
601199 CH EquityJIANGSU JIANGN-A880.239China5822.4924.85
900935 CH EquitySHANG YOUNGSUN-B720.233China2621.0756.78
CI MK EquityTALIWORKS CORP960.231Malaysia1430.3312.52
600461 CH EquityJIANGXI HONGCH-A1800.205China4311.3127.84
601158 CH EquityCHONGQING WATE-A6650.202China4796113.53
MPI PM EquityMETRO PACIFIC IN7120.184Philippines29400.1118.57
AGUAS/B CI EquityAGUAS ANDINAS-B8080.136Chile39670.2918.58
AGUAS/A CI EquityAGUAS ANDINAS-A8080.126Chile39670.6618.58
IAM CI EquityAGUAS METROPOLIT8090.118Chile18251.816.74
PBAH MK EquityPBA HOLDINGS BHD810.107Malaysia1000.310.68
ESSBIOA CI EquityESSBIO SA-A2480.058Chile4850.0321.38
ESSBIOB CI EquityESSBIO SA-B2480.05Chile4850.0321.38
ESVAL/A CI EquityESVAL-A2740.04Chile914024.03
ESVAL/B CI EquityESVAL-B2740.036Chile914024.03
EASTW-R TB EquityEASTERN WAT-NVDR1260.033Thailand6790.4116.28
EASTW TB EquityEASTERN WATER RE1260.033Thailand6790.4116.28
ESSBIOC CI EquityESSBIO SA-C248-0.088Chile4850.0221.38
ESVAL/C CI EquityESVAL-C274-0.115Chile914024.03
MWC PM EquityMANILA WATER362-0.116Philippines11700.588.79
600283 CH EquityQIANJIANG WATE-A112-0.122China3571.25160.36
SBSP3 BZ EquitySABESP5462-0.183Brazil739511.078.05
SAPR4 BZ EquitySANEPAR-PREF1109-0.191Brazil16743.158.33
PWSA KH EquityPHNOM PENH WATER28-0.194Cambodia1081.2413.59
CSMG3 BZ EquityCOPASA MG - ORD1815-0.215Brazil199216.729.71
VDBLRA BK EquityVODOVOD AD BANJA10-0.231Bosnia And Herzegovina120.3589.81
600323 CH EquityNANHAI DEVELOP154China9711.67
SAPR3 BZ EquitySANEPAR1109Brazil16743.718.33
SAPR2 BZ EquitySANEPAR-RTS1109Brazil16740.018.33
ANGS RU EquityARKTIKNEFTEG-BRD239Russia58110028.82
CWCB BM EquityCONS WATER CO-OR66Cayman Islands453.0443.25
FVC-R TB EquityFILTER VISION8Thailand150.0720.55
FVC TB EquityFILTER VISION PC8Thailand150.0720.55

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.

TickerShort NameRevenue 1Y ($mm)1Y Total ReturnCountryMarket Cap ($mm)PriceP/E
UENV SP EquityUNITED ENVIROTEC159.11073221.31336Singapore403.9386240.67917213.614263
371 HK EquityBJ ENT WATER656.18616620.9455965Hong Kong3710.2044160.43979628.042765
257 HK EquityCHINA EVERBR INT578.76975670.9231809Hong Kong3973.5096320.9801925.797691
MWA US EquityMUELLER WATER-A1120.80.8264561United States1358.3150088.5837.304348
VIE FP EquityVEOLIA ENVIRONNE33222.4698720.7762968France9534.43942417.37085353.001751
6361 JP EquityEBARA CORP4845.875510.7153334Japan2507.6183045.41174117.041079
FCC SM EquityFCC11540.1068650.7003058Spain2923.94803222.968361
PNR US EquityPENTAIR LTD-REG7313.4319360.6614928Switzerland13382.90073667.15000228.574858
IEX US EquityIDEX CORP1994.3480.6579697United States5627.99820868.94000223.20409
SEV FP EquitySUEZ ENVIRONNEME19337.5886250.6446878France9066.94860817.77018415.586783
CCC US EquityCALGON CARBON552.7160.6033655United States1087.8854420.0132.470905
AALB NA EquityAALBERTS INDS2602.7709050.5935069Netherlands3346.86796830.26645918.544891
GRC US EquityGORMAN-RUPP CO388.7150.5701838United States865.52915240.95000128.048733
021240 KS EquityCOWAY CO LTD1770.0459880.5614732South Korea4416.61081657.33879947.908443
WTS US EquityWATTS WATER TE-A1464.40.5483442United States2042.53772857.9325.712383
XYL US EquityXYLEM INC37730.4434578United States6152.68249633.4821.789711
IP IM EquityINTERPUMP SPA684.20965450.4273983Italy1218.15513611.18812516.312674
ARCAD NA EquityARCADIS NV3331.7422920.4170845Netherlands2415.53177632.28376417.627819
SGL SP EquitySOUND GLOBAL LTD471.54164430.3960396China733.6640640.57001910.971208
DHR US EquityDANAHER CORP18826.5006080.3937938United States50247.19257672.04000121.525522
HLMA LN EquityHALMA PLC978.63249360.3792225United Kingdom3395.2273928.98145222.164944
GEBN VX EquityGEBERIT AG-REG2064.0009680.3555776Switzerland10663.908352282.12570223.862133
AWR US EquityAMER STATES WATE476.3090.339734United States1106.11289628.62000118.845165
ALFA SS EquityALFA LAVAL AB4487.7724210.317394Sweden9789.22291223.33788320.430477
FELE US EquityFRANKLIN ELEC CO940.9790080.310798United States1812.28646438.11999922.102446
WTR US EquityAQUA AMERICA INC777.7360.2860984United States4455.70252825.3521.320753
ROR LN EquityROTORK PLC849.83608060.2786374United Kingdom4000.43699246.08015126.527037
BMI US EquityBADGER METER INC327.4350.2688626United States758.3964853.2531.82785
HER IM EquityHERA SPA5992.6643550.2584061Italy2922.5136642.0737629.413238
KRA1V FH EquityKEMIRA OYJ2942.3012180.2265603Finland2569.2646416.579081
CWT US EquityCALIF WATER SRVC565.6640160.2087872United States1030.57785621.55999923.131905
6370 JP EquityKURITA WATER IND2039.8433460.2015782Japan2580.48819221.73868826.490971
AWK US EquityAMERICAN WATER W2873.1300480.1998126United States7600.84838442.8220.811604
SVT LN EquitySEVERN TRENT2894.8136130.1892886United Kingdom7201.44691230.14168919.601101
AEGN US EquityAEGION CORP1056.10.1518047United States839.80211221.70000115.555556
270 HK EquityGUANGDONG INVEST1016.0514810.112158Hong Kong5503.267840.88217110.73952
ITRI US EquityITRON INC1948.5370240.1106238United States1775.6780845.58000240.596714
CTWS US EquityCONN WATER SVC86.2240.09449871United States358.38438432.522.090586
202 HK EquityINTERCHINA HLDGS47.783111590.09090913Hong Kong423.3602880.0696453.545285
UU/ LN EquityUNITED UTILITIES2585.6759670.07895165United Kingdom7822.51315211.47183717.246376
TTEK US EquityTETRA TECH INC2029.543040.06215137United States1716.89638426.6642.317459
SUN SW EquitySULZER AG-REG4249.2460530.04134415Switzerland5232.882176152.72972116.930693
CMP US EquityCOMPASS MINERALS1009.30.00791733United States2528.50995275.51999723.613873
LNN US EquityLINDSAY CORP690.8480.005155889United States965.8462727513.711152
PNN LN EquityPENNON GRP PLC1898.367812-0.00757139United Kingdom4107.59628811.08622893.2659
ANDR AV EquityANDRITZ AG6920.775168-0.02995594Austria6332.65715260.89094225.125
LAYN US EquityLAYNE CHRISTENSN971.082016-0.100551United States389.21059219.59
SBS US EquitySABESP-ADR5462.389776-0.2045297Brazil7340.89574410.828.046982
ICL IT EquityISRAEL CHEMICALS6566.028928-0.332622Israel10431.196168.2097848.563035
NES US EquityNUVERRA ENVIRONM531.244008-0.3361111United States618.6616962.39

The key takeaways we would like you to take from this article are:

 

  1. Water shortages are real and acute in Frontier Markets
  2. 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.

  3. 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:

Solving the water crisis

Australia’s dynamic water companies

Innovative technologies within the US

5 Companies for a Thirsty World

Israel’s water technology

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