Water is a must-have commodity but a neglected investment theme.
You can hardly open a financial web page without finding a discussion about a commodity super cycle. There is similarly intense debate over "peak oil". Even the red top newspapers are headlining gold as it soars to new record prices.
So why the silence over water? I'm not talking here about the UK's four or five water utilities. I'm talking about the global shortage of the only essential commodity on Earth -- clean, drinkable water.
Solving this problem creates money making investment opportunities. I'm going to highlight some of them, but first let's take a closer look at the global water situation that is giving rise to water being called "blue gold".
A massive imbalance between demand and supply
Water is the single most important element for human life. We take it for granted in the UK because we (apparently) have so much of it, but although 70% of the world's surface is covered by the stuff only about 3% is fresh water -- and a lot of that is polluted. According to the World Health Organisation less than 1% of the world's freshwater is readily available for human consumption.
It takes about 4,000 litres of water to grow one kilogram of rice and 11,000 litres to produce the feed that goes into the bit of the cow that produces a quarter pounder. You drive a car? It used 450,00 litres of water in its production.
These are staggering numbers, and demographic and climate change will mean two thirds of the world living in geographic areas with inadequate water supplies within twenty years. World water consumption is expected to double over that period according to research by Moody's.
There are few places encountering the problems of freshwater shortage worse than China and India. The rapid industrialisation of both countries has outpaced their water availability and infrastructure. Two thirds of China's 600 largest cities don't have enough water and over 300 of them have polluted groundwater.
In fact China is in the unenviable position of having 20% of the world's population but only 7% of its water. To put that into context China has about as much water as Canada but 40 times the population.
But this isn't just a developing country problem. Here in the UK we have been subjected to drought regulations in recent years. And recently several Canadian and US states bordering the Great Lakes have signed a pact banning all large scale water diversions from that source. That prevents 20% of the world's fresh surface water being piped to desert states like California, Arizona and Nevada.
Several investment opportunities
This is a problem that is not going to go away. It will get worse and the investment opportunities will be in those companies operating in three sectors; technical consulting, desalination and infrastructure.
Unfortunately for the UK investor there are very few 'pure water' plays available. Companies like Halma (LSE: HLMA), WS Atkins (LSE: ATK) and Hyder Consulting (LSE: HYC) all have a proportion of revenues and earnings derived from the water industry, but returns will be diluted by other industry sectors.
Those companies that are 'pure water' plays like Modern Water (LSE: MWG) tend to be small and relatively high risk.
One European contender that stands out is the Suez Environment Company quoted on the French stock market and a member of the CAC 40 (code SEV). This is no tiddler as it has a market capitalisation of €7.4bn. The company operates in five continents, supplying drinking water to 76m people and water treatment services for 44m people. Last year revenues increased 5.4% and net profits rose 8.4%. With a dividend yield of about 4% and most brokers rating it as a 'buy', this share looks worth tucking away.
For those who prefer funds there are few UK-quoted water ETFs such as ETFX Janney Global Water Fund (LSE: WATE), iShares S&P Global Water (LSE: IH20), Lyxor World Water (LSE: LWAT) and Powershares Palisades Global Water (LSE: PSHO).
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