Water investment is proving to generate positive long-term returns on the back of demand which is expected to grow by 80% within the next 30 years.
In an interview with Citywire Asia, + rated manager Alex Ko, head of chief investment office at BNP Paribas Asset Management, said water investment is a growing market and has already doubled from the $500 billion universe back in June 2016.
‘Among the water investment space, we see a $1 trillion market capitalization of investable names around the world that fit our criteria, translating to approximately 250 companies with minimum 20% of revenue in the water space,’ he said.
BNP Paribas’ Parvest Aqua fund launched in 2008, for instance, has generated annualized return of over 17%, outperforming MSCI world’s 13%.
Manged by Citywire A-rated manger Hubert Aarts, the fund has a pure water player approach and on average 60% of invested stocks’ activities is concentrated on water sectors. It is bias towards water infrastructure and treatment where growth is most expected.
Some of the popular water related stocks in Asia include Citic Environment, Siic Environment, China Everbright Water, China Jinjiang Environment, and Sunpower Group. Elsewhere, Aqua America, American Water Works and SJW Corporation were ranked among top performers in 2017.
Ko said thanks to technology, water related companies are well advancing rapidly, increasing efficiency in the entire value chain. What’s more, awareness and investments from governments in both developed and emerging markets, public and private sectors, have also increased.
He said there are four primary growth drivers for water investment: supply and demand, tightening global water regulation, adaptation to changing weather patterns, and innovation and evolving technology.
If you examine supply and demand – there are millions of people in Asia who lack access to clean water. Water scarcity is in fact a top risk identified by governments, corporations, and academia. South Asian countries are one good example.
The World Health Organization (WHO) estimates that in Bangladesh, out of the 160 million people, about 4 million lack safe water. In India, WHO estimates that 21% of communicable disease in the country are linked to unsafe water.
In December 2015, the city of Chennai in South India faced its worst rains in over a century, killing hundreds of people. Since then, the Indian government has invested in water conservation education, storm water drainage systems, and infrastructure.
China, too, has directed about $300 billion to address water pollution in the country. Last August, it launched 8,000 water clean-up projects worth $100 billion.
Among the Chinese at least a quarter of the population lack access to piped water, and 97% of people living in rural areas lack adequate sanitation.
‘[In China], there will be $7.5 trillion projected spending globally over next 15 years in water infrastructure,’ Ko said, adding that increasing incidence of both drought and flooding, new technology and upgrades to existing systems create further investment opportunities globally.
A study by the Carbon Disclosure Project revealed that $9.5 billion worth of water projects are now open for investment globally. The cities most concerned about supplies are in Asia and Oceania (84%), followed by Africa (80%) and Latin America (75%).