The Most Dangerous of All Threats to Investors

Once again, the commodity markets are front-page news.

As an Australian investor, you’re accustomed to that. If you swallow the stories in the mainstream press, you’d think this country lives or dies at the iron ore drill bit.

But the plunging oil price has pushed iron ore off the front page — not just in Australia, but around the world. The oil markets have stock investors in a death grip.

At times like this, it pays to step back and re-examine the big picture.

Investors are right to focus on commodities — but they have the wrong asset in their crosshairs.

The greatest threat to the global economy is not a weak oil price.

It’s not nuclear war, and it’s not a currency war. With apologies to our mate Sam Volkering, Port Phillip Publishing’s technology analyst, nor is this threat a digital war.

This threat comes from something we all take for granted…

Water scarcity presents a clear and present economic danger.

You may already know that — especially if you’re in the bush. But you might not know how much the need for water, and lack of it, is threatening business growth.

CDP, a UK-based research firm that advocates for investors, recently quizzed 174 large global companies on their attitudes to water use. The firm reports that two thirds of those businesses face severe water scarcity risks.

These companies are not, as you might think, just in the agricultural sector. Businesses in every corner of the global economy are worried about this.

If you’re wondering if we’re about to preach about climate change, you can push that thought out of your head right now. Yes, Australia has just sweltered through its hottest Spring on record — but the water scarcity companies are facing is immediate.

It’s coming from a lack of available clean water, overuse of the resource, and from severe weather events like drought. You see, drought’s not just an Aussie phenomenon…it’s currently affecting the US, China, India, Brazil and Mexico.

That’s why 22% of the global companies CDP polled say insufficient water resources could limit their growth over the next three years. As an investor, that risk should have you sitting up and taking notice.

If something doesn’t shake this system, up, it’ll get worse before it gets better…

An expert view

The world’s population is growing by 80 million thirsty humans per year. What’s more, changes in lifestyle and eating habits — not just in the Western world, but also increasingly in emerging markets — are increasing industrial water consumption per capita. People and companies are going back to the well faster and faster.

A quenched and gorged population is a happy one — but a thirsty and hungry population is dangerous. Extreme conditions lead to extreme politics.

So how can we avert a geopolitical crisis and dodge this liquidity crunch? Our old mate Anna Kosovac has the answer.

Anna is an expert on the link between water scarcity and conflict. She’s also a long-time friend and former colleague. Here’s her take on the topic…

The first action is to limit water losses through poorly maintained infrastructure. Leakages of up to 50% are not unusual in many distribution systems, especially in developing states. This occurs due to poor maintenance of existing infrastructure. It is imperative that these states harness this lost water through improved infrastructure projects and better maintenance schemes.

Anna knows better than anyone that water security is vital to economic growth. But she clearly bases her view on the officials tightening their grip on valuable water supplies. At Money Morning, we like to think the market has a role in sorting out these problems. And when you plug the right companies into that role, investors can reap great rewards…

Jump on this trend

Countries around the world clearly need to boost their supplies of clean water. But in this fight, spending billions of taxpayer dollars on new infrastructure can be a blunt weapon.

Governments, companies and individuals can secure their clean H2O supplies by investing in water treatment systems.

Quietly but steadily, companies have developed the technology to turn filthy water into the elixir of life.

Farmers can now desalinate and clean up dangerous waste liquid to make high quality industrial water right on their property…and some little Aussie companies provide the tech that makes it happen.

These companies might just need a little boost from the authorities for their products to really catch on. One of them is a stock we tipped to readers of Australian Small-Cap Investigator five months ago. In that time, it has already brought wise speculators a gain of 41%.

This trend is only just kicking off. Water security will get worse before it gets better…but if you invest in the right companies now, you can ride this trend for strong potential gains.


Tim Dohrmann+
Editor, Money Morning

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