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It’s widely acknowledged that China and India are the world’s economic superpowers-in-waiting.
Of course, there’s a long way to go before either can lay claim to that title, despite all the hype and rhetoric. And there are plenty of tripwires for both countries to negotiate before they get there. One of the most enduring problems they have is a lack of water – and more importantly, a lack of the infrastructure to distribute and clean what water there is.
Both countries are fully aware of this, and understand the importance of securing supplies. The trouble is, this has the potential to lead the world’s nascent superpowers into conflict with one another – and as The Times reported yesterday, that could be a disaster…
The Chinese are considering damming the Brahmaputra, a river which starts in Tibet. The plan is to divert supplies to the Yellow River to bring more much-needed water to northern China.
73-year-old hydrological engineer Guo Kai backs the idea. He reckons the Brahmaputra ‘can quench the thirst of all of China. The water supply can last for 1,000 years.’
The trouble is, the Brahmaputra doesn’t just stop at the Chinese border. It goes on to flow through north east India and Bangladesh, before terminating at the Bay of Bengal. Understandably, the residents of those areas are not too happy at the thought of their river being summarily cut off.
Chinese authorities say there are no such plans in place – but the Indians are concerned enough to be raising it with President Hu Jintao on his current trip to Delhi.
The disagreement is another reminder of the importance of ‘blue gold’, as water has been dubbed in recent years. We’ve written about the global water shortage in MoneyWeek a number of times before – see How to profit from the world’s water crisis for our latest cover story on the topic – and it’s certainly a problem that investors should be aware of.
India and China’s dispute over the Brahmaputra is by no means the only watery flashpoint in the world. The Nile, for example, proves water for no fewer than 10 countries, including Rwanda, Congo and Eritrea, none of which are paragons of stability.
But the markets aren’t worried about water wars. Nor are they concerned about the lack of direction over how to respond to North Korea’s newfound nuclear capacity – the most damning statement that the Asia-Pacific Economic Co-operation forum could manage was to note their “strong concern” about the development.
Stock markets across the globe are hitting new highs, while the difference in yields between the best debt and the worst debt is hitting record lows. The world is already priced for perfection, but according to the markets, it just keeps getting better.
And yet, all the signs are there that the economy is on the turn. The US housing slowdown is making itself felt across the Atlantic. Lowes, the DIY chain, saw underlying sales fall for the first time since 2001 in the three months to November 3rd. The group still managed to hike profits by more than expected, due to cost-cutting – but while that might be good news for shareholders, it‘s not great news for the wider economy. Cutting costs eventually means cutting jobs, and when jobs go, people can’t pay their mortgages, and so they don’t spend money on DIY projects, which means more people at Lowes lose their jobs, and so on.
Meanwhile, here in the UK, casualties of the credit bubble continue to mount. Citizens Advice report that Henley, which two years ago had the highest house prices in the UK, according to the Halifax, is also seeing a huge jump in the number of people asking for debt advice.
And sub-prime lender Cattles has called a temporary halt to its takeover of London Scottish Bank, a debt collector and sub-prime mortgage company, because it’s not fully satisfied with the group’s accounts. The problems may just be a result of LSB’s recent switch to IFRS accounting standards. But with bankruptcies soaring, and repossessions rising, the sub-prime mortgage market will be the first to suffer heavy losses – perhaps that’s why Cattles is being extra cautious. There’s not much point in buying a debt collector if it’s going to end up being its own main customer.
Just like bubbles, busts have a habit of creeping up on people and markets. It takes a while for the prevailing opinions that created the bubbles in the first place to change. When the price of something – like Anglo-Saxon property – has been rising for a long time, any bad news is dismissed as a buying opportunity. And on the other side, when the price of something else – like Japanese stocks – has been falling for a long time, any good news is taken as a chance to sell into strength.
It takes a long time for the fundamentals to reassert themselves. But reality always eventually catches up with perception. And when it does, an awful lot of people are in for a very rude awakening.
Turning to the stock markets…
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In London, the FTSE 100 ended 12 points higher, at 6,204. Miners bounced from Friday’s falls, with Antofagasta topping the risers’ board with a 4% gain to 476.5p. For a full market report, see: London market close.
Elsewhere in Europe,the Paris CAC-40 closed up 15 points, at 5,454, whilst the German DAX-30 was 39 points higher, at 6,452.
On Wall Street, the Dow Jones fell 26 points to 12,316, but the Nasdaq gained 6 points to close at 2,452, while the S&P 500 shed 1 point, to close at 1,400.
In Asia, the Nikkei 225 was barely changed, climbing 8 points to 15,734.
The price of crude oil was higher in New York, trading at around $59.10 a barrel, whilst Brent Spot was at $58 in London.
Spot gold was also higher, trading at around $624.70 an ounce.
And in London this morning, credit checking specialist Experian has reported a 12% rise in first-half profit as the number of Americans checking their credit ratings rose sharply.
And our two recommended articles for today…
Are Canadian tar sands the answer to our oil needs?
– When the oil wells run dry, how will we meet our energy needs? If you believe the hype, we’ll be getting our fuel from the Canadian tar sands – also known as oil sands. But extracting the oil-rich bitumen is an energy-intensive and costly process – so can the sands really address the problems of Peak Oil? Find out, by clicking here: Are Canadian tar sands the answer to our oil needs?
How to buy into the diamond boom
– Contrary to marketing and popular belief, diamonds aren’t rare. But due to the growing Asian middle class, supply is not keeping up with demand. And that means diamond prices are set to boom, says Merryn Somerset Webb. Find out how to take advantage, by clicking here: How to buy into the diamond boom.