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Water Shortage Opens Floodgate of Opportunities

Stocks in this article: PHO CGW PIO

NEW YORK ( TheStreet) -- As global populations continue to grow, advancements in medical technology continue to prolong life and developing economies add wealth, the PowerShares Water Resources (PHO), the Claymore S&P Global Water (CGW) and the PowerShares Global Water (PIO) are likely to reap the benefits.

Water is a commodity that is absolutely essential to survive and is essential in the cultivation and production of food. At current rates, it is expected that demand for potable water will grow 6% annually. This, in conjunction with the water shortage already seen in numerous parts of the world, is drawing heavy attention to the commodity.

The imbalances of supply and demand are currently hitting India and China and are expected to get worse. According to a study conducted by McKinsey & Co., water demand in the next two decades will double in India to 1.5 trillion cubic meters and rise 32% in China to 818 billion cubic meters. Additionally, at current consumption rates, the 1.2 billion people in India, where farmers use 80% of available water, will exhaust their fresh-water supplies by 2050.

The uptick in demand for water is well known, but what is expected to truly support price movements in the highly sought-after resource is supply. Granted, the globe is comprised mainly of water, but of this water, a mere 1% can be used by populations for agricultural production, industrial uses and human consumption.

Additionally, Mother Nature is not helping water supplies in India or China as Southwest China had its worst drought in a century this year and India witnessed the weakest monsoon in more than three decades last year. To make things even more challenging, a group of scientists recently reported that soil moisture levels on Earth are declining and are expected to result in a depletion of fresh water tables around the world.

Water supply in China has been further impacted by its rapid industrialization and growth. The Asian nation is home to nearly 20% of the world's population but houses a mere 7% of the world's fresh water. To put things really into perspective, the World Bank reports that the Asian nation's rapid growth has contaminated 70% of its rivers and lakes, while half the cities have polluted groundwater. With these current trends, by 2030 China will have a supply shortfall of nearly 201 billion cubic feet.

As for India, nearly 60% of the emerging market's arable land depends on rainfall from the annual monsoons. Additionally, the nation's fresh water reserves are unevenly distributed and do not have the proper infrastructure that would enable control over floods and curtail shortages. India has implemented mandates that focus on conservation of water, but is still far from curbing wastage, improving efficiency and having an answer for its expected supply shortfall.

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