Take advantage of Global Warming
People - Investing
Wednesday, 31 October 2007 12:33

The global warming up is affecting the world economy and the effects will become much more pronounced than they are now. The changes will be slow but they will be inevitably progressing.

One of the main effects is that it will be much dryer in most parts of the world, except for the northern hemisphere. That will affect agriculture: worser harvests hot regions such as Asia, Africa, Latin America and better harvests in cold but warming regions such as Russia, Canada and Scandinavia.

With Market Vector's RSX one can invest in Russia. At the time of this writing fossile energy companies make up a large part of this ETF. However agriculture also grows in Russia, helped by cheap labor from China. Something similar applies for Canada (iShare's EWC), right now fossile energy companies dominate its stock market but Canada's agricultural sector also offers growth if the global warming up continues. One could also consider investing in Sweden with iShare's EWD. These three investments have the disadvantage that their performance right now still depends on fossile energy. Also the agricultural sector is a small part of these three economies. Therefore a bet on increasing prices of agricultural products and hence increasing profits of farms might be more effective. These higher prices are also caused by the use of agricultural products for producing fuel for trasportation. Such a bet can be made by buying Market Vector's Global Agribusiness ETF (MOO).

A large part of the global warming is triggered by methane emissions of an ever increasing number of cows. Technology for reusing methane from cows will solve much of the global warming problem, so if you come across anything promising companies it is worth investing in them. If you don't believe in such technology then sell any companies in the cow-industry.

Another effect is sealevel rise, which will affect the economies of low countries such as The Netherlands. Sealevel rise is a long term phenomenon, it will probably take at least 20 more years before we really see the effects. So in the short and intermediate term I do not expect any influence of the global warming on the dutch economy.

The transportation sector will need to change an awful lot. At the time of this writing this sector is heavily depending on fossile energy increasing global warming. Bear in mind that only fossile energy can efficiently be carried by cars, lorries, ships and plains. It is possible to replace fossile energy in cars. However I am sceptical about running ships and airplanes on non-fossile energy. In addition most infrastructure and buildings are maintained and built using vehicles running on fossile energy. My guess is that the infrastructure and building industries will suffer from higher oil prices. On the short term these sectors will be able to calculate higher energy prices into their prices. Bear in mind that high investments in infrastructure might be necessary due to changes in the transport sector and due to sealevel rise.

Long-distance transports and short distance commuting will probably shift towards rail transport wherever possible. Increase of rail transport is likely because it uses electricity which can be produced with clean or nuclear energy. Often it uses less energy than transport over water or by truck. It takes much steel to build railways, so a worldwide increase of rail transport might affect steel prices as well. At the time of this writing a Railways ETF did not exist yet.

Changes in the transport sector also depend on the availability of ways to store clean energy. If it existed I would buy an ETF investing in technology for energy storage. At the moment the world economy depends heavily on the transport sector. In particular countries depending on export or import of manufactured products over long distances, such as China, will be affected by higher transport costs.

Economies heavily depending on the tourist industry suffer from higher fossile energy prices even more. In the tourist industry demand is expected to react much stronger on higher oil prices than the demand for manufactured products such as computers. Since tourism involves much air travel it uses much fossile energy that is difficult to replace.

For commuting distances people will abandon their cars and switch to cheaper forms of transport, such as busses and trains, but also to motorbikes and scooters. They will work from home more often than now, which will be an extra factor for the growth of the internet. International business travel by air will decrease.

As described above it is practically not feasible to run airplanes on alternative energy. In addition airline travel is often not really needed or can be substituted by something else. Therefore the changes in the tourist industry and in international business travel are very likely to happen. Therefore long-term investments in airlines or airports are not recommended.

The world has to shift its energy sources towards non-fossile energy. So buy PowerShares Global Clean Energy ETF (PBD) . You might consider Market Vectors Environmental Service ETF (EVX) as well. Last but not least in this category is Market Vectors Global Nuclear Energy ETF (NLR).

In the long run sunny places will be an asset since these places can be used for energy production. Especially if they are not too densely populated but still close to other densely populated regions, for example a big city close to a desert. It is said that it is expensive to transport electricity but it already happens every day, and a thousand kilometers is no exception. Obviously electricity transport is likely to increase.

Increasing temperatures might trigger more infectious diseases. Invest in HealthShares HHG to help curing them. At the time of this writing this fund seems to underperform by the way.

Especially in the drying emerging countries it will be more and more difficult to deliver enough potable water. ETF investments in the water sector can be made via PowerShares Global Water ETF (PIO) or via Claymore S&P Global Water (CGW).