LONDON Economic stimulus cash flowing into the water sector will make this nascent $400 billion market an attractive alternative to traditional equity markets, a panel of water market experts said on Wednesday.
Water shortages are on the rise, stemming from soaring demand, growing populations and rising living standards, and compounded by climate change.
"Water scarcity is one of the biggest challenges facing humanity ... and climate change will magnify all the pressures, all the weaknesses in the water cycle," said David Lloyd Owen, managing director of water advisory company Envisager.
"Investing in water infrastructure has become one of the key responses to the financial crisis," he added, speaking at an Investing in Water seminar in London.
While firms such as General Electric, 3M and Siemens actively invested in companies that monitor, manage and improve water supplies through 2006, government stimulus cash is now providing the latest boost, the panel said.
Governments have responded to the global economic slowdown by committing $2.8 trillion in economic stimulus packages, with the U.S. launching its own $787 billion plan in February.
"Stimulus money in many countries is being targeted toward the water sector," said Bruce Jenkyn-Jones of Impax Asset Management, citing some $15 billion directed toward investment in water infrastructure under the U.S. plan.
GE estimates the global market, with subsectors including water technology and infrastructure, pollution control, water management and treatment, to be worth around $400 billion.
New, cost-effective technologies are also emerging to facilitate remotely metering water use, treating waste water for reuse and desalinating sea water, the panel said.
Piers Clark, a managing director at consultants Mouchel, cited a new method of desalination involving microscopic molecules called clathrates that can cut the cost of separating salt from drinkable water by around 90 percent.
Impax estimates there are around 260-280 listed companies that have water-related activities representing at least 20 percent of their business. These have on average outperformed the MSCI World Index over the past 5 years and have a combined market cap of $200-300 billion, Jenkyn-Jones said.
A number of exchange-traded funds (ETFs) have emerged in the past few years to facilitate investing in this growing market.
Claymore S&P Global Water ETF tracks companies associated with water demand, water utilities and water infrastructure in developed markets, and has risen by 3.3 percent so far in 2009.
Other ETFs include the PowerShares Global Water Portfolio, an international ETF with a 30.7 percent weighting in U.S. water companies, and the First Trust ISE Water Index Fund which tracks 36 of the top water industry stocks.
The PowerShares ETF is up 6.6 percent this year while First Trust is down 3.7 percent.
(Editing by James Jukwey)