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HSBC launches Optimised Global Water Index

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HSBC’s global banking and markets division has announced the launch of the HSBC Optimised Global Water Index, which aims to capture the growth potential of the water industry as it adapts

HSBC’s global banking and markets division has announced the launch of the HSBC Optimised Global Water Index, which aims to capture the growth potential of the water industry as it adapts to the challenges of increased demand and shrinking supplies caused by rapid industrialisation in emerging markets, increasing pollution and climate change.

Created by HSBC’s global markets business, which plans to launch a range of investment products linked to the index, it is distinct from the independent research products of the group’s global research operation.

It gives exposure to up to 20 companies engaged in water and water-related businesses including water collection, storage, purification, distribution, metering, desalination and sanitation as well as companies whose business is closely linked to water usage. HSBC says these companies often have returns that are generally less correlated to business cycles and benefit from a near monopoly of service.

‘Water is increasingly seen as ‘blue gold’,’ says Paul Thind, head of structured derivatives development for Europe, the Middle East and Africa at HSBC’s global markets business. ‘Over the past century, water use has grown at more than twice the rate of population. By 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity.’

‘This is only made worse by the rapid growth of urban areas, which is placing a strain on water resources. The HSBC Optimised Global Water Index allows investors to benefit from the potential returns from companies engaged in businesses along the water value creation chain – not just supply but infrastructure and treatment.’
 
According to Thind, as with other commodities there will be increasing costs associated with water usage across the globe. Water companies engaged in the provision of water understand the need to modernise and enhance water infrastructure and draw on new technology to guarantee supply.

The index is a modified market capitalisation-weighted index comprising a maximum of 20 stocks, and exists in two variants, the Global Water Total Return Index, which includes ex-dividend adjustments, and the Global Water Price Return Index, which excludes the effects of dividends. Constituents must meet a number of criteria for inclusion, including availability to foreign investors and a minimum average daily traded value over three months of USD1m.

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