The basis for any investment decision should always be the underlying belief that an asset purchased today will be worth more in the future.
One way to ensure an increase in value is to identify an asset that is mispriced and misjudged by the market and subsequently undervalued. Mispricing occurs for a number of reasons, but one would be a widely unforeseen future surge in demand for a product or service offered by a company. This surge in demand will drive a rise in price of an asset. Another way to see an increase in asset value, is for that asset to be diminishing in supply and increasing in scarcity. Oil and gold are excellent examples of this. At Hanover Merchant Capital, it is this notion that makes us believe water is a sound investment decision.
However this begs the question, given that water covers most of the earth’s surface, why invest in water?
Whilst water does, indeed, cover 70% of our globe, only a tiny percentage of this is actually drinkable for humans, and even a smaller amount of that is accessible. Knowing this, drinking water starts to become a much more finite resource than immediately thought. Furthermore, there are other important factors at play that make an investment in water a sensible selection. With an ever growing world population, set only to increase, and climate change continuing to cause problems in every corner of the globe, access to fresh water is not only crucial but increasingly difficult. Droughts, which trouble vast areas of the world, year on year, are now all too common. Plus there has been limited investment in aging pipeline infrastructure in even developed countries. All the while, demand for drinking water continues to increase with urban areas expanding more quickly than can be catered for.
Thus the discovery of a large aquifer in Namibia, for which Hanover Merchant Capital offers investment, is in an important find. It provides a necessary solution to the water shortages that are already plaguing the world. These water shortages, for the reasons mentioned above, will only continue to worsen thus providing an excellent investment opportunity due to an increased demand in the future.