La Jornada – Financial speculation with water grows in the face of global scarcity

At the end of 2018, an instrument associated with the price of water in California was created. When it was listed on futures markets two years later, the issue sparked a brief debate about how ethical it is for US stock markets to capitalize on a human right. Since then, the value of that index has doubled.

Trading at $511.33 when it was created in October 2018, the Nasdaq Veles California Water Index (NQH2O) even depreciated in its first two years since it was created. On December 7, 2020, when listed on the CME Group – the largest financial derivatives exchange in the world – its value was 486.53 dollars.

Entering the open market, the index — which represents the value of 325,851 gallons of water in California — soared 104.2 percent in less than two years. To date the NQH2O is quoted at 998.95 dollars.

Presented as a type of coverage for producers, especially agricultural ones, who require large amounts of water and are subject to environmental uncertainty, the NQH2O in the CME Group is not to sell the liquid, but rather contracts on its price within a certain period of time. future.

Derivative products are generally traded in the Chicago market, “financial instruments in which a purchase and sale price is established for a transaction to be carried out in the future,” explains Janneth Quiroz Zamora, deputy director of economic analysis at Monex , when asked about how the futures markets operate.

It details that at the expiration of the contract the agreed price must be respected, “what these indices show is the expectation of what the price will be in that period.” However, “these markets are used for two purposes. One is hedging, to reduce uncertainty, but there are other types of users, speculators, who ultimately can distort real market prices.”

James Salazar, deputy director of economic analysis at CIBanco, says that “almost no future closes the operation on the agreed date.” In order to avoid risks, some investors close it before, once they see that they have already won or reduced their losses, since if the price goes too far above the price in the contract they can go bankrupt.

An example of the participation of speculators in markets in sectors where they do not have a direct benefit was what happened in April 2020, at the beginning of the coronavirus pandemic, when oil futures were quoted with negative values ​​for the price of a barrel and many of the buyers had nowhere to store the hydrocarbon, they even paid to have it taken away (https://bit.ly/3ui3anI).

Beyond the futures markets, in the Mexican Stock Exchange you can invest in the “water market”, which according to Global Water Intelligence will have a value of 914 thousand 900 million dollars in 2023, a projection that anticipates a growth of 18.8 percent in five years.

The Mexican stock market reports that it is possible to invest in international water treatment, storage and innovation companies through Exchange Traded Funds (ETFs), which are portfolios associated with a sector and that are made up of portions of the assets of various companies, which which makes them cheaper (https://bit.ly/3ygwg82).

But beyond the processes around treatment or storage, when NQH2O entered the futures market, the United Nations special rapporteur on the right to water, Pedro Arrojo Agudo, condemned the futures price of the liquid given that, he warned, would invite speculative trading.

While part of the financial markets speculates on its price, 2 billion people in the world lack access to basic water and sanitation services, United Nations reports show.

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