The UN World Water Day sets the backdrop for a “third wave” of water investing, which will see $12trn to be allocated to spending on water through 2030, according to Matt Sheldon, senior portfolio manager at Dublin-based KBI Global Investors (KBIGI).
“We are”, said Sheldon, “at the front end of the next wave of investing in water. If you look back at the early 2000s water spending was driven by the developed market housing boom. After the great financial crisis, we saw wave 2, driven by industrial water – whether it was the energy renaissance in the US, Chinese stimulus or global corporations taking seriously for the first time their responsibilities in addressing their energy and water footprints.
“Wave 3 is driven by infrastructure and policy-led initiatives. We’re going to see $12trn spent on water infrastructure by 2030, as much as in telecoms and power.”
Sheldon noted that the populism seen in politics worldwide is now flooding the water space. In the past, politicians tried to maintain their leadership by delivering low-cost water but today their motivation is to ensure they are not hitting the headlines because of problems left unaddressed.
“We only need look back a couple of years to the crisis in Flint, Michigan – where cost-cutting measures led to tainted drinking water – to see how media sentiment has changed,” Sheldon said.
Trump and infrastructure
A key plank of the case for water investing is KBI Global Investors’ view that spending on the water infrastructure of the US has been far too low for too long, and needs to increase substantially – and at KBIGI more than 75% of the portfolio can be classed as infrastructure stocks – for instance, companies involved in building, or providing equipment or services for water infrastructure.
Increased infrastructure spending will therefore benefit KBIGI water strategy, with Trump’s commitment to infrastructure being particularly supportive, the asset manager said.
Whilst all the noise is about Trump right now, Sheldon notes cross-party political support for extra infrastructural spending — the Democrats have just published their own policy document proposing an additional $110bn spend on the rehabilitation of water and sewer infrastructure.
China’s pollution from industrialisation has led to more than 70% of Chinese rivers, lakes and groundwater being designated as polluted, leading to an urgent need for wastewater treatment.
On a separate note, the dislocation between water supply and demand is most prevalent in emerging economies, where population growth and urbanisation is most significant.
In China, the ‘Chinese South-North Water Transfer Project’ is designed to bring water from the southern region of China, which has water in abundance, to northern Chinese cities. The construction of this project will not be complete before 2050, and will provide opportunities for companies across the water infrastructure spectrum.
The Modi project
India is among the fastest growing markets globally, growing at 12% per annum from 2014-2018. Only 70% of urban households and 30% of rural areas have access to piped water – the level of ‘Non-Revenue Water’ (i.e. that lost in the system) between 30-50% on average, and wastewater treatment low or non-existent in most regions.
“India is notoriously bureaucratic and project delays are commonplace, but with Prime Minister Modi focused on reviving investment through the introduction of new and more straightforward financing mechanisms, removing bottlenecks and encouraging foreign direct investment, we are seeing some real and meaningful project activity on the ground,” Sheldon said.