Very Liquid Assets; Water crises are both a dark threat to the world and an increasingly bright investment opportunity.

Byline: Alexandra A. Seno

The new oil may be water. According to Global Water Intelligence, a U.K. consultancy, by December total assets under management in water funds could hit a record $20 billion this year, a 53 percent increase from 12 months earlier. No wonder: since 2001, shares in glob-al water companies have gone up 150 percent, according to Thomson Financial. That compares with a 50 percent rise in international blue chips.

The reason is simple: there is profit in scarcity. Buffeted by constant news of dying rivers, droughts and water shortages from China to Mexico, investors are increasingly aware that water is a threatened resource. With more and more governments handing public water systems over to the big multinationals like the U.K.'s Veolia Environnement and Thames Water, profits are rising. One of the top companies, France's Suez, saw global sales from its water unit increase 11.7 percent, helped by a 20.3 percent rise in revenue from China. These days, savvy asset-management companies have turned water-shortage anxieties into a burgeoning investment-fund business. Like the rest of the market, water stocks have fallen recently, but a lot less than, say, U.S. equities. While the Standard & Poor's index plunged by a tenth in the last few weeks, shares in global water companies are down only about 3 percent, helped by international business exposure and the view that cash-generating utilities businesses are a good defense in a downturn.

This year, much of the new money pouring into water funds is coming from Asia, where ethical investing is very new. It may also simply be that Asia is the only developing region that has a combination of remarkably acute water crises and particularly rapid growth, creating a new crop of investors who are intimately familiar with the water threat. Only seven months into 2007, there are now 27 international water funds, more than double the number compared with 2006. Of the 15 new products, nine target Asian investors in Hong Kong, Seoul, Tokyo and Sydney. Since April, when Societe Generale's Lyxor Asset Management unit began inundating Hong Kong with ads touting its new water fund, it has raised $320 million from mom-and-pop investors alone, well beyond its expectations.

The price of any company's stock reflects its estimated future earnings, and the potential to make money fixing water problems is huge. In developing markets where affluence is ...