Monday, September 20, 2021

Water Is On Wall Street! Investors Looking Straight Into The Future

According to the UN’s report in 2018, a whopping 2 billion people live in countries that are rapidly depleting their freshwater renewable resources and are thus, extremely water-stressed. As many as 1.42 billion people are living in areas that are highly vulnerable to the water crisis. This number includes 450 million children. This is not all, according to Global Water Institute’s report in 2013, the number of people that will be displaced by 2030 due to the water crisis can amount to 700 million.

Given the fact that situation is only taking a greater morbid turn with each passing year, this number is only expected to go up.

Having said that, it is not that difficult to guess that the world is heading towards an emergency that can prove to be irreversible for humanity. Actually we already are experiencing an emergency.

ALSO READ: 1O best water stocks that can make you filthy rich in future.

However, every crisis is accompanied by a fringe opportunity. And yet another time, investors and financial institutions might have found a way to make money out of the depleting water resources- the concept of water future trading.

Are you ready to trade water on Wall Street?

The most essential element for life to exist on earth is water and unfortunately, it has also become the most scarce resource in the world due to human negligence.

In California, institutions are now able to bet against the availability of water in the future and make an earning out of it. In the U.S.A, the largest economy in the world, a first-of-its-kind contract was introduced in early 2021 right after the wildfires ravaged the U.S Western Coast.

World’s largest futures exchange, Chicago Mercantile Exchange, allows parties to bet on California’s spot water market. The price of water future in California was traded for almost $486.53 per acre foot. What’s more? The entire water future market in California is worth whopping $1.1 billion already.

In today’s date, several water-specific ETFs have come up that trade shares of water-related conglomerates. The intent in all these cases is quite clearly related to booking profits and has little to do with treating the water scarcity issue at hand.

As sad as it sounds, this is the reality of today’s society.

Trading commodities like gold, silver, oil, and others have been a common practice for centuries but trade in water is a fairly new but condemnable concept. Since the inception of this concept, oligarchs from around the world have constantly worked towards creating a monopoly in the market. Again, unlike other commodities, there is no such developed futures market in most regions giving an easy entry to capitalists. 

ALSO READ: 10 A.I. stocks that can make you filthy rich in long run

Presently, there persists an inconsistency in trade agreements concerning the use of water in a sustainable manner. In fact, internationally binding trade agreements concerning sustainable use of water do not exist. It has been widely debated that international trade rules should provide for stronger restrictions on products responsible for having direct harmful effects on aquatic ecosystems and indirect effects on the communities that depend on them, but to no effect.

A future where water will be more expensive than oil

Most commodities are traded on a future contract, however, as far as water-related contracts are concerned, reports suggest that such contracts will have to be financially settled in case of expiry in the coming years making it more liquid, pun intended. This essentially means that unlike the future contacts for oil or metals, a party will not be compensated with water but cash to go.

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Only last year, crude oil fell to a price cheaper than water as it hit a decade low of $28.6/ barrel. The recent correction of the oil prices is, however, temporary as experts believe and with the advancements in the industry, oil prices may yet again plummet up to $25/ barrel in the global context. The IMF, back in 2020, predicted an economic contraction steering the world into one of its worst recessions largely backed by the global pandemic and the plunge in the prices of oil.

Let alone the common folk, business may also soon face severe impacts due to the constant negligence of the value of water. While even the most essential commodity on the planet has a price, it is the unmerciful mankind who will have to eventually pay for it.

The Global Scenario

With impactful increase in population, the regions with water scarcity or drought have become major pressure points of the world economy and as many as 20 megacities of the world are facing acute water scarcity. India which is host to one of the world’s poorest communities faces severe depletion of underground water sources. The northern regions of the country constitutes for the majority of the 163 million people without access to clean drinking water.

African countries are yet another water-scarce region with southern Madagascar and southern Mozambique jointly leaving a population of roughly 26 million without access to potable water. Myanmar too faces increasing hot and dry seasons which result in depletion of groundwater contributing to annual water scarcity. In the country, over 40% of the rural population is deprived of clean water sources.

Siddharth Kulkarni
Siddharth is an incoming FMV Analyst and B.Com Hons graduate from Delhi University. Siddharth holds several positions of authority at a college level at various societies namely The Young Entrepreneurs Society and The Hult Prize. He is an enterprising youngster who is passionate about learning and growing as a person with each successive day. He is a hardworking and self-confident individual who possesses zeal and grit and loves to work with details. Being a sportsperson as well as an academic achiever, he love to surround himself with healthy competition.

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