6 HOT Global Trends You Should Invest In Now: SCARCITY OF FRESHWATER (4)

Water covers about 97% of the earth's surface yet the world continues to face severe water shortages.

Why is this so and how can you as an individual investor profit from this global conundrum? Please read on to find out.

Neither North Korea nor Iran will start World War III.

WATER, the "Blue Gold", probably will.

All around the world tensions are rising or remain elevated over water.

In Africa, Egypt is ready to go to war with Sudan and Ethiopia over the River Nile.

The Jordan River basin remains a flashpoint because it serves Israel, Palestine, Jordan, Syria, and Lebanon.

The UN says there are tensions and disagreements among countries along the Mekong River in Indochina as well as around the Aral Sea in Eastern Europe.

In the U.S., the Colorado River, which serves California, Arizona, Nevada, Texas, and Utah, is drying up, while Florida, Georgia, and Alabama routinely butt heads over a shared river basin.

Although we are a water planet, the bulk of this water is "saltwater", which is unfit for human consumption. The little "freshwater" available is what countries are fighting over.

As the world's population explodes and urbanization rages over the next decades, demand for potable water will be unprecedented. Luckily for you as an investor, there are more than a handful of companies around the world pouring billions of dollars into making the abundant saltwater fit for human consumption. Water service providers, especially companies involved in saltwater desalination and waste-water treatment, are poised for phenomenal growth.

The water services industry comprises primarily high-growth, small to medium-cap companies whose stocks tend to be very volatile. If you can't stand the volatility of individual stocks, then pick an index fund or exchange-traded fund (ETF). There are several popular ETFs focused on water service companies.

If you have the stomach for high beta, then consider individual stocks of companies that derive all or the majority of their revenue from water resources. Don't be tempted here by big companies, like GE and ABB, that derive a minority of their revenue from water services because you'd be getting too much of what you may not want.

Now, i don't know at this point if saltwater desalination will be more important than waste-water treatment in the quest to meet the world's hunger for freshwater. Therefore, at first i wasn't sure which companies to invest in. You may have the same dilemma.

After much research i eventually picked one pure-play desalination company and one firm involved primarily in waste-water treatment. My desalination pick was Energy Recovery, Inc. (ERII), an American firm that has been expanding its global footprint. It also has ambitions in the oil and gas industry. Abtech Holdings (ABHD), a micro-cap company that partners with industry giant Waste Management (WM), was my waste-water treatment pick.

Invest in the global scarcity of water now, so that in future mandatory water rationing won't feel so bad if or when it comes to your neck of the woods.

This is the fourth in a series of posts that examine six hot global trends you should invest in now. In the next blog, i examine the hot trend of Robotics.

3 WAYS THE NIGERIA STOCK EXCHANGE COULD BOOST DOMESTIC INVESTOR INTEREST IN STOCKS

South African telecommunications giant MTN Group, which operates in 21 African countries, makes its biggest operating profit in Nigeria. Yet the firm is not listed on the Nigeria Stock Exchange (NSE), so Nigerians contribute immensely to the company's wealth but have no say in how it's run.

Similarly, none of the International Oil Companies (IOCs) in Nigeria have listed their upstream businesses, the most profitable part of their operations.

Why are are local and especially foreign companies so reluctant to list on the NSE?

The fundamental reason is that there are few investors to buy and sell their stocks.

According to Oscar Onyema, CEO of the NSE, there are 5 million investors on the bourse. Now, considering that over the past five years foreign investors have accounted for an average of 60% of daily transactions on the NSE, one can assume that at least 60% of the 5 million investors are foreigners.

This leaves only 2 million domestic investors in a country of over 160 million people - that's less than 2% of the population, compared to the U.S. where 54% of the population were stockmarket investors.

The NSE and the Securities and Exchange Commission (SEC) have commendably embarked on all kinds of reforms to encourage more equity listings on the NSE. What they haven't done is generate huge domestic investor interest in the market.

So who's going to buy and hold all the stocks when they list?

Foreign portfolio investors mostly hit and run, so the NSE can't depend on them for the long-term development of a highly liquid and sophisticated market. Domestic institutional investors, which form the bulk of domestic investors, are too few and too risk-averse to massively deepen the market.

Therefore, the NSE needs individual investors.

Here are three ways it could encourage more of them to enter the fray:

1. ONLINE STOCK BROKERAGE

I don't understand why you can't trade Nigerian stocks unless you go through an offline stockbroker.

Many of these stockbrokers do nothing but take buy and sell orders. At the extreme they hoard valuable insider information used as leverage in opaque dealings with unaware clients.

Stockbrokers who exist only to take transactional instructions offer no value. In fact, they are a dying breed across the world.

Most clients of stockbrokers already do the research behind their buy and sell decisions anyway, so why can't they have the option to directly transact online?

The NSE should compel stockbrokers to offer their clients an alternative online trading platform and should facilitate the provision of such platforms to overcome any technological barriers.

2. FOREIGN-INVESTED EXCHANGE TRADED FUNDS (ETFs)

At the moment there's huge interest from the international investment community in Nigeria's growth story. A few weeks ago, a new pure-play Nigeria ETF debuted on the New York Stock Exchange (NYSE).

Ironically, foreign investor interest in Nigeria has generated a reciprocal domestic investor interest in foreign equities.

Since foreign companies won't list on the NSE to give Nigerians direct access to their stocks, an alternative strategy that gives indirect access is NSE-listed ETFs that invest in foreign securities.

There's already a precedent somewhat with the December 2011 Absa Capital listing of the NewGold ETF - Vetiva Capital Management reportedly oversees the fund.

These foreign-invested ETFs could attract individual investors because they (investors or their stockbrokers) don't have to spend time and money to pick individual foreign stocks.

3. INDIVIDUAL INVESTMENT PROTECTION

In the U.S. the Securities Investor Protection Corporation (SIPC), a non-governmental non-profit founded and operated by broker-dealers, exists to protect small investors. The SIPC has been instrumental in encouraging individual investor participation in the U.S. stockmarket. Small investors know they can recover their cash and investments up to certain limits if a stockbroker goes bust.

Since individual investors mostly shun securities insurance offered by traditional insurance companies, the NSE could mandate its members to establish a SIPC-like protection for individual investors.

Obviously, protection limits have to be set to prevent a moral hazard of excessive risk taking by individual investors. Furthermore, individual investors could be required to post cash collaterals proportionate to their account values beyond protection limits.

CONCLUSION

There's just no way the Nigeria Stock Exchange (NSE) will grow if millions of individual investors don't invest in the stockmarket.

Nigeria's capital market regulators are making so much effort to attract equity listings to the NSE. However, the companies they're chasing know there are hardly any investors to buy and sell their stocks. Therefore, regulators should double-up on attracting more individual investors.

In any market, it's demand that drives supply, not vice-versa.