Market Overview

Global Water Market To Surpass Crude?

As the world continues to increase in density and urbanize, demand for fresh water is likely to do nothing but increase. This is the stance of Citigroup, as the Financial Times reported on Thursday. Citigroup is now recommending that investors purchase water companies given current global trends.

Willem Buiter, a top Citigroup economist, expressed how he sees the market developing in a recent essay. He outlined that water is not a public good, but a private one that will be traded and transported similarly to how oil and natural gas are traded and transported today.

Buiter predicted that a massive infrastructure for water transport will arise as the world's need for the precious resource grows. Most notably of all, Buiter expects to see a fully integrated market for water within 25 to 30 years.

With an integrated market would come trading and handling of water similar to how we handle oil today. Buiter believes that this would even include different types of fresh water, designated similarly to how oil is divided into light sweet and heavy sour crude.

The formation of a complex market is important because Buiter and others expect water to grow into the most traded commodity. They predict that water will dwarf all commodities we trade today in both importance and volume. He expects the water market to even outgrow the size and importance of the oil market as the world's water needs grow ever more pressing.

Several companies are poised to capitalize on this news, including this list from Citigroup and ETFs like the PowerShares Water Resource ETF (NYSE: PHO).

Another sector to look into is water desalination, which could grow significantly as fresh water resources are strained more and more. We have covered desalination before, and the importance of desalination is only set grow with time.

Should water explode, these companies and funds are poised to take full advantage of it and grow significantly in value.

Traders should be prepared to be in this for the long-haul, though. Buiter made no predications for any time closer than 25 years from now. He sees a greater trend toward water as the main commodity worldwide, but he gave no evidence that this change will happen any time soon.

Expect to see big things in water over the next several decades, especially as populations grow denser and standards of living rise. Trade it well and one could make a tidy profit.

Business Insider has a few interesting graphics that can help traders visualize how important water resources are.

ACTION ITEMS:

Bullish:
Investors who believe the water market will develop as Buiter believes it will might want to consider the following trades:

  • The PowerShares Water Resources ETF (NYSE: PHO)
  • Look into a desalination supply company like (NASDAQ: TTEK)

Bearish
Investors who believe that this is a bunch of nonsense may consider these alternate positions:

  • Short PHO, which is up more than 28% over the last 52-weeks
  • Short a water company like ITT Corporation (NYSE: ITT) which has responded positively to Citigroup's stance on water companies

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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