This chapter examines the relationship between the water sector of the equity markets. It includes the world market and markets of different individual countries such as China, Hong Kong, Singapore, Germany, France, the UK, Brazil, Chile, and the US for the period 2001-2020. Investment returns and volatility of these markets are analyzed to understand investment decision-making in these water markets. The OLS and quantile regressions show that China, Hong Kong, Singapore, Germany, France, the UK, Brazil, Chile, and the US are positively related to the world market. The results confirm simultaneous interactions between the world market and the other nine markets. The ARMA (1,1)-GARCH (1,1) model shows a high degree of persistency in the conditional volatility of stock returns for these water markets which means “explosive” volatility. Moreover, the VAR analyses show that the nine markets positively and negatively affect the world market. The findings may assist the international institutions while deciding investment in water portfolios.
TopIntroduction
It is well accepted that water is an issue of great concern worldwide given that there are water shortages in many countries (Reza et al., 2021; Tularam & Marchisella, 2014). Acute potable water availability shortages and problems exist in regions such as South Asia, Middle East, Mexico, Southern Spain, and Northwest Africa just to name a few (Reza et al., 2021; Jin et al., 2015; Wild, et al.,2007). The data analyses by many continue to show that 3.9 billion people will be affected by severe water stress by 2030 (OECD, 2008; Tularam & Reza, 2016). The potable water usage has increased around; for example, almost seven times in terms of daily usage over the past 100 years (Tularam & Krishna, 2009; UN, 2015). This is not surprising given that there has been an unsustainable population growth that is further driving the higher water demand. Moreover, other factors such as climate volatility with changing weather patterns are not helping the serious shortages and excessive availability of the fresh water that cannot be safely captured or stored (Tularam & Reza, 2017; Tularam & Murali, 2015).
Evidently, water is a vital commodity where the world is facing a water supply-demand imbalance because of increasing water scarcity (Reza et al. 2017; Tularam & Properjohn, 2011). Tularam (2014) stated in the “Australian Planner” Journal: “By 2030, under an average economic growth scenario and if no efficiency gains are assumed, global water requirements would grow from 4500 billion m3today to 6900 billion m3This is about 40% above the current accessible, reliable supply. This global figure is really the aggregation, and other such estimations show an even worse situation: one-third of the population, concentrated in developing countries, will live in basins where this deficit is larger than 50% “(p. 372).
Currently, the world’s population is approximately 7.3 billion people (UN, 2015). The population growth rates are increasing in fact in many countries and the numbers would be larger within the next few decades – for example, UN (2015) is expecting the global population may be 9.6 billion by the next 30 years (RobecoSAM., 2015) and therefore, the freshwater demand is predicted to increase by more than 50%. To meet the increasing demand, some solutions may be considered. One possible is the solution is to majorly finance in the water sector - both public and private water industry around the world (Reza & Tularam, 2021; Roca et al., 2015). It is estimated that US$ 1 trillion is needed globally for the ailing water infrastructure1 - about USD 6.7 trillion and 22.6 trillion are needed by 2030 and 2050, respectively for water infrastructure and security of investment (Winpenny, 2015).
To fund such a large amount, Governments, companies, individuals, domestic and foreign institutional investors have all noted the possibility of investment in water for not only to forward the ethically based investment but the stability and rise of water use may lead to substantial returns for investors. A critical examination of such investing has led to the private water sector investment groups to take up the challenge (Reza, 2017; Roca & Tularam, 2012).
Given the water sector needs funds, the consequent expanding of the water market including the added investment into water will grow further due to the ethical and so-called “green investing” has been becoming a focus for larger investors as well due the changing humanitarian aspect of the marketplace. Not surprisingly, the demand conditions should ultimately lead to a better set of financial returns from the global water industry as-a-whole (Roca et al., 2015; Reza, 2017, Reza et al., 2021).