Longer Term Investments: water scarcity
Uh. Hello and welcome to the bulletin with UBS monocle twenty four each week. We hear from the sharpest minds, and freshest, thinkers in the world of finance taking on the numbers in the height, and getting to the heart of the big issues of the day this week, we're diving into water scarcity the focus of a recent longer term investment piece from the chief investment office of UBS, global wealth management, put simply water is essential to life and represents a key driver of economic growth. Unfortunately, freshwater is distributed, unequally worldwide many countries confront the increasing challenge of water scarcity, while some face overabundance limited access to safe drinking water, and adequate wastewater management's, a widespread global problem and scarcity makes it difficult to improve overall health prevent poverty, and stimulate economic growth in many countries forty percent of people around the world live in regions that suffer from water stress and that figures projected to rise to fit. Fifty five percent by twenty fifty the long term. Investments were LT. I series contains the Matic investment ideas, based on long-term structural developments secular trends like population growth aging and increasing urbanisation create investment opportunities. Influenced by the interplay of technology resource scarcity and societal changes today, we'll catch up with a good friend of the show. To learn more about how this particular resource scarcity kennel should inform investment strategy in the space. And we'll go to the source if you will, and discuss the findings of this, LT, I report with its author, we start with pulled on oven global chief economist at UBS wealth management, pull, let's begin by talking broad brushed terms about the LT. I series I and the Matic's that are particular interest. They don't even certain secular trends, and the investment opportunities that go with them. Can you remind us? I why this is such a compelling area. So a lot of clients oversee thinking about long. If you're wanting a family office, you may be. Considering multiple generations into the future in terms of your investments, and we live the real Disley in on certain times. But even with all the noise that we've got some, the, the jumping of markets on every tweet from US president or every aditorial in the people's daily in Beijing what we still have a, an inexorable truth, as it were things which are over the longer term going to present investment challenges on investment opportunity. And that's where the long-term things come in these all things which demographics, which the maitre ecconomic development, make not absolutely certain but very, very strong probabilities over a multiple year view now, pull if we tend to look specifically oversee investment opportunities that you can characterize wave just described shape by many things technology, or the advance of technology would societal changes disgust resources like water. But. But it doesn't really follow follow certain cycles, but it's not a cyclically predictable. I guess some other things is this classic case where both challen general paternity lies therein. Yes. Absolutely. I mean in, in one son, there is my water scarcity was the ultimate recyclable results, you could be drinking a Cup of coffee made from Queen Victoria's offals. For example, the challenge, of course, is usable. But we call potable water is a scarce resource, and we have populations in places where there isn't enough water. And that's where the challenges come in Wolters. Absolutely critical of human survival. It is critical for agriculture about seventy percent of label water. Use is agricultural based so they're huge huge challenges and issues around Walser overall. But it also presents opportunities because if we can create more efficiency, if we can create better use of worser than that can make an enormous. Difference to people's standard of living one. Interesting aspect in the report poll was sort of a nexus illustration detailed consequences for certain sectors like the environment, or food, even energy, where you can kind of see pretty readily the key role at water water scarcity plays. But it's also interesting urbanize ation, which is another one of these secular themes that were you? And I've talked about before also very important. And I guess this is the point about war trick kind of everything, doesn't it? It does. -absolutely urbanize ation particular merging market, Ivanisevic in, which is, which is really the trend is something, which changes wall to us, and it changes in a whole variety of ways it changes it directly in the fact that people want running. So you won't better sewage systems, you built manage that. What happens if you are as with South Africa example in Cape Town or failure Nell them, what happens if you'll city which wasn't in the walls of the private area suddenly becomes deprived area? I mean they would dissolve the scenarios being talked about the recent counting Capetown. I'm with the browsing Melbourne a few years ago, besides me because of this clash of urban is Asian wolves in the facility in terms of lifestyles, people's Lysol, tend to become more water intensive as they become more of them, just in terms of how they live, what they're wearing will they consuming and selling them simple. So there's all sorts of things come out from an economic point of view. One of the fact of I often stress is the Walser is the single most traded commodity on the planet. Because water is in bedded in so much of what we consume the we're not actually shipping bottles of sparkling more around the world, but we all shipping, for example, microchips, which have a huge amount of Alterra soybeans, which have a huge amount of also inside them. And that's where you the full reach of water really sauce, become obese when you think about it in those, we'll give them poll other is this like many of the other longer term investment themes, which we've talked on this program are they necessarily also sustainable investment or investing themes, is there a necessary crossover alignment of those two, can they can they deviate, they can deviate, there are certain aspects which directly sustainable around health care, for example, or demographic, fem-, a loss of the naturally will overlap because the way that we are growing economy today is unsustainable within twenty years time off ended of living will be generated. Through environmental credits borrowing on sustainable resources unless we do something about it. So inevitably Zun as you saw thinking about the long term, you have to salt thinking about sustainability because the trends that we have today on not sustainable, and therefore by definition, Tanel, be longer term. We'll pick up on the sl again a little later in the program next though, let's talk to Alex Steeler actually analysts in the CIO UBS global wealth management. Going back to the start hair. What were the expectations your co author of this pace, what would the objectives at the start of the process, not a big surprise that we have what issue worldwide? I mean, the problems that we have kind of unfair distribution of water. So we have several countries with a lot of water, but many countries, unfortunately, with only a little access to water so Cording to several sources forty percent of the world's population county lifts in reaching base. Levi's Hafer, some, some kind of water stress and disfigures project to rice to fifty five percent by two thousand fifty based on the CD estimates from data from active. We thought it could be interesting to investigate whether there's an investment opportunity, because at the end, we need some, some solut- providers to tackle this problem, and that was basically stopping point on top of that. It's one of the SAT's or waters indirectly in several cities. But the that that's just something point remind us about the L TI's, Alex. How do these pieces of research fit in is it about looking at multiple cycles, bucking, the trends that can distract you if your focus more on the short term? Keith rival when we launched investments around five years ago, I mean, inequity analysts your normally focused on quarterly results, which is fair in which is our job, people also interested in long-term, vestment opportunities and their report, we thought let's take some drive that a very good predictable pretty easy. So like population growth aging and open station. Throng structure, trends, and Singapore, which companies are subsectors regions can benefit from these three drivers and obviously, what is cost is one of this investment topics. Next to where the most attractive, long-term -tunities here, is it a question of coin to narrow focus, or has often as we've discussed on this program. Is it about insuring a diversified exposure attractive thing about an water scars a mix of cyclical, names and offensive names? So we think that their own thirty five percent of our theme. Correct. Derived by wastewater treatment so water utilities pretty defensive names in general and sixty five percent consists of water equipment suppliers that really provide equipment for what expiration disappeared into treatment. I mean faucet drawing subsectors, and which obviously all the currently citizen, less kind of Bellas water treatment, for example, or designation, and slowest growing are kind of filtration palms Volve. So won't intrastructure. Bit about of annoys ation, as another facet hero IX, there, some interesting findings in the pace about this theme. Big problem, with ovation is that at the end someone has to pay for it, and in the past, unfortunately, countries, three on the spent and deaf will we have a big leakage basically of water. So most of the water still comes at home or still coming to the home, bub. A lot of unfortunately lost unit transport so to junior dispute, I mean to everage life spent of water pipes, Ron fifty to one hundred years, but unfortunately boater infrastructure developed, so in Europe and North America is much older. So we have, for example, in Newark cities, we have still pipes that they'd back to nineteen ten so more than one hundred years, or you can imagine that we have a lot of leakage, and that's basically a big problem for what dispute. We were talking with sustainable investing. Can I ask you whether the LT, I things are always stained one imagines at least as a fair amount of crossover? Not all I would say two of them are linked to investing. I mean some of them and both the water linked to achieve sorta stem development goals of the United Nations. Bought some are not really linked to sustain investing about what is one of these investments seems like Steeler. I want to ski next about gency water scarcity the themes that we've been talking about here in character, and yet which take a long-term view. Is that a challenge organiser sort of helped unity implicit nuts? It is quite through. But on the other side, it's rea- structural point s mentioned before infrastructure investment is nothing you can do just today, but his release something for for many years of differ, we think it's structural opportunity, but I mean with the short-term opportunity. Like mentioned before ballast water treatment, where we had a new regulation dead since September two thousand seventeen for example, all new sips have to meet three standards and also opportunities initial to medium-term in that sense about risks, X, we've heard about energy prices investment activity from municipal from governmental authorities those a couple of the main areas, we shouldn't forget that water pumps are also used, for example, in detail gas production. I mean, if you for example, shop drop in the oil price that hadn't few years ago, also what investment indirectly negative effect so that only one risk so a and shop driven and energy prices and Secondly, three that country's Kanda fall to invest in water infrastructure job. Raphy other particular job refuses relevant here. It's mentioned in the peace, given this global problem the solutions that are global in character are the most attractive. So where should we be looking? I would say Asia, definitely I mean you need to build a completely new water infrastructure. And then it's about in investments in Europe and also North America. So all three major regions, basically Asia Europe and North America like Steeler, Flynn le-. Let's wrap up the show with the client view pulled on have been. What does all this mean for clients? Is it about that old chestnut of diversification? Is it about looking at particular job? Raphia. What does it mean? So I think there's a there's a lot, which comes out Ables, because we've been discussing these -solutely so critical to human existence. So one of the issues when we think about wolf investing ease the critical human existence. It is a very, very politically sensitive topic. So just saying, we're going to challenge for more so that doesn't work because that's not considered politically or socially acceptable. You don't say no, you can't have a drink because you can't afford it. That's something which is very, very difficult for me. So think about the political and social framework in which we can. Suitable for is important thinking about countries which are walls constrained. I'm where that may change their industrial happens, so China, for example, has had to revolutionize its iron and steel industry closing huge swathes of it because it was power inefficient. I'm not power. Was dependent on water oil and coal fired power stations, depend on Bulte. They run into a problem in China because there wasn't enough water to cool the power stations, so they couldn't cool electricity's. So they couldn't generate electricity produced inefficient steel nine since some of these chains are complicated, but it comes to water, the source and investors need to think about that. I think that there is a focus on more efficiency, where making better use of the wolves resources go distributing the resources more effectively not is something, which I think is a very powerful investment seeing that comes out of it, ultimately with a lot of investment themes. It is about becoming more efficient in, you know, use of resources so that we can. And maintain existing signs of living without doing serious damage to long-term growth, Spain ability, and that's pulled on bringing us to the end of this two hundred and forty third edition of the bulletin with UBS setting the agenda in the fast moving world of finance each week here on monocle twenty four. Listen. Again, and find out more at Monaco dot com. Are your preferred podcast platform the bulletin with UBS on monocle twenty four?