Daily Management Review

Water To Become Wall Street’s New Trading Commodity


More and more investors could start taking interest in water “preservation and distribution”.

CME reports that by 2025, nearly two-thirds of global population could be facing water shortage. We are all witness to the ravaging wildfires of California as a “clear enough sign” of the changing climate conditions. And now, if reports are to be believed, Wall Street will soon begin to trade on “future contracts” involving the “state’s water supply”.
These contracts will be first of their kinds to be seen in the U.S. which are being developed under CME Group Inc. whereby the company claimed that these contracts will enable municipalities as well as farms of California which are considered to be “big water consumers” to have a windbreak against the surging prices while providing a benchmark to signal the acuteness of water scarcity within the country as well as in the world at large.
California has been facing tight water situations for years now, while a huge part of Africa as well as Asia are also on the brink of potential water scarcity with the rising global temperature. Furthermore, CME estimated that by 2025 nearly two-third of global population could “face water shortage”. While, the Global Head of Equity Index as well as Alternative Investment Products at CME, Tim McCourt:
“Water scarcity is certainly one of the biggest challenges facing communities and individuals today across the globe, where currently about 2 billion people are already living in countries experiencing high water stress”.
Almost a decade ago, Michael Burry, an investor, highlighted investing in water as commodity and in farm holdings whereby drawing Wall Street’s attention. Burry remarked that one sees “a lot of demand for those assets these days”. In the words of the AcreTrader’s Founder as well as the C.E.O, Carter Malloy:
“It’s really a unique mechanism for investors themselves and California to be able to at the very least understand and price the risk and potentially hedge the risk of water price volatility”.
However, it is not clear as to what will be the future cost of water. More and more investors could start taking interest in water “preservation and distribution” as investor Jeff Ubben’s Capital Partners aims to tackle a wide spectrum of challenges staring from “environmental damage to food scarcity”.
In recent year, environmental activists have been warning about wars being fought over water in the coming years as water scarcity and its demand for “agriculture, energy and growing cities” continue to rise. With climate change becoming more pronounced, the C.E.O of World Wildlife Fund, Carter Roberts said:
“Food is going to be a flash point”.
The above mentioned contract of CME worth “$1.1 billion” will be tied to the water market of California and will base on the “Nasdaq Veles California Water Index”, while the same is expected to be launched later in the year as “regulatory review” remain pending. In the words of a senior manager at Nasdaq Global Indexes, Patrick Wolf s:
“What we really wanted to be able to do was firstly to provide clear and transparent rules-based information to the marketplace”.