IT is said that oil and water don't mix but stocks involved in basically any aspect of the water industry have seen a run-up in recent weeks akin to that of the spectacular bull run involving the oil and gas counters.
But for the majority of analysts, the similarity ends here. Those who did not buy into the rise of oil and gas stocks say the rally in water stocks is more believable than the run in oil and gas.
“Water is an infrastructure and it offers more fundamentals. Oil is cyclical and is determined by international prices,'' said the head of research of a local stockbroking company.
“Furthermore, there is a plan as to how much will be spent in water. For oil and gas, it is just potential right now.''
Interest in water-related stocks appears to have superseded that of oil and gas stocks after the announcement by Puncak Niaga Holding Bhd that it was awarded the contract to supply water to Selangor and the Federal Territory.
Stocks engaged in the water industry have been moving upwards steadily, but to some quietly, amidst the attention given to oil and gas stocks. Yesterday, the entire gamut of water stocks moved significantly higher, many of them to record highs.
Ranhill Bhd, a construction company with activities related to the water industry, rose RM1.90 to RM7.70, a jump which some attribute to news that the company would be included in the consortium to undertake the development of marginal oilfields.
Puncak Niaga gained 14 sen to a new high of RM3.70.
Water stocks have been trending up on expectations that infrastructure and government spending in the business of supplying water would be increased and upgraded. The announcement that Puncak Niaga landed a RM500mil contract to replace pipes reinforced such beliefs.
With billions of ringgit now earmarked as spending, analysts say that moves by the federal government to consolidate the jurisdiction of water rights would ensure a concerted and orderly development of the industry.
Another comfort to investors is that many are familiar with the idea of companies making money off contracts awarded after a major construction drive over the past few years.
Analysts said all those factors, together with the fact that water was more visible than oil for most investors, made it easier to predict just what some of the companies in the water industry could possibly be making in the future.
They said research into oil stocks was unknown until recently and the risks involved in prospecting for oil were far greater than in supplying water.
Furthermore, a number of local investors may not be comfortable with the prospect that an earnings explosion for oil and gas stocks may not happen immediately and are still subject to volatile international oil prices.
“Investors are somewhat less prone to take on riskier themes after going through arguably the worst bear market in stock market history,'' said the head of research with a local brokerage.
And with a host of water companies involved from upstream and downstream activity to concessionaires, there seems to be a lot of choices for investors.
As water stocks bask in the attention, those in the oil and gas segment - probably due to overbought technical conditions - closed substantially lower yesterday.
Some analysts said the likelihood of a repeat broad-based rally in oil and gas stocks appears dim after news on the members of the second oil consortium broke.
Petra Perdana Bhd shares went through a roller coaster ride yesterday to finally close 90 sen lower at RM13. SCOMI GROUP BHD lost 70 sen to RM10.10 after news it would not be participating in the second oil consortium.
But UOB KayHian head of research Lim Beng Leong, the strongest backer of the oil and gas rally, said the disclosure of the consortium members did strengthen the prospects of oil and gas stocks, but only the leading companies in the segment.
“The market will now be able to pin down the capabilities of such companies and such stocks will get a further lift when the identity of the marginal oil fields are revealed,'' he said.
“Those with real oil and gas capabilities will enjoy another rally,'' he added.
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