WaterTreatmentChina.com

As liquidity is drained from credit and money markets and pours into oil and gold, another asset class that could offer long-term returns to the discerning investor is water.

Water shortages are on the rise, stemming from soaring demand, growing populations, rising living standards and changing diets. A lack of supply is compounded by pollution and climate change.

Investors are mobilizing funds to buy the assets that control water and improve supplies, especially in developing countries like China where urban populations are booming, further tightening supply.

"Many of these cities have tripled in size in the last 10 years so there's just an unaddressed need, there's an enormous opportunity for investment," said Kimberly Tara, chief executive of FourWinds Capital Management, a commodities investor.

This year, FourWinds will start raising global funds initially of up to €3 billion, or $4.68 billion, to invest in water, Tara said.
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Water shortage is already a serious problem in many regions of the world, as underlined in a December report from Sustainable Asset Management, based in Zurich.

These regions include southern Spain, the Maghreb area of Northern Africa, the Middle East, Central Asia, Pakistan, southern India and northern China. In the Americas, the U.S. Mid-dle West, Mexico and the Andes are the worst-hit areas. Eastern Australia is also badly affected.

China is a particularly strong example. It has a fifth of the world's population but just 7 percent of the water. Most areas of its five main rivers are unsafe for direct human contact, and it will have to build 1,000 wastewater treatment plants from 2006 to 2010 to meet national pollution targets, Citigroup analysts say.

But not everyone will benefit. While some Chinese cities are now investment hot spots, rural areas are being bypassed, underscoring a trend of underfinancing in poorer regions and countries most vulnerable to shortages.

Large equipment suppliers for obtaining water and treating waste will not operate in parts of the developing world, said Robert Miller-Bakewell, a Merrill Lynch analyst.

"They're pretty selective about where they go," he said. "That means a lot of this need will not necessarily be addressed in the near-term.

"The technologies exist. You and I and the World Bank and everyone else can identify the need. The big problem all along is about who's going to pay for it all."

Parts of Africa are especially dry - both of clean water and cash - at a time when prices are rising for the steel and concrete that are the raw materials for treatment plants.

A combination of unsafe water and poor sanitation kills about 1.8 million children annually, a Merrill report estimates.

The investment approach of FourWinds Capital is to go after projects in water treatment and desalination and the companies that make meters, pipes and pumps.

Little money stands to be made from owning and charging customers for water itself, because governments subsidize water prices to ensure it is most underpriced when in greatest need.

"It's very intuitive - you must have the water, and so you'll pay anything to anyone who will get that water to you, but the water itself you have to control," Tara said. "So the price of the water is not the place to invest."

A warming world is expected to play havoc with the world's rainfall patterns - with less rain in heavier bursts - and is likely to melt mountain glaciers on which hundreds of millions of people in Asia and South America depend for water.

Some governments fret that the attention paid to fighting the causes of climate change, especially greenhouse gas emissions, has been at the expense of coping with the damage that it is already wreaking or that is around the corner.

A collapse of the Indian summer monsoon from as early as next year is one of the world's most immediate, serious climate risks, according to research posted last month by the University of East Anglia, in Norwich, England.

Drought is perhaps the most immediate of climate change threats, but even without global warming the aspirations of new middle classes in Asia are a challenge.

An average European uses 150 to 400 liters of water daily for personal requirements, the Sustainable Asset Management report said. Consumption in the United States is almost twice as high, but in China, the figure is only 90 liters per day on average, while in many developing countries it is below the 50 liters a day "critical threshold" set by the UN Food and Agriculture Organization.