Goldman Sees Investment Opportunities in Japan

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The Goldman Sachs Group, Inc. (NYSE:GS) is contemplating to penetrate Japan’s infrastructure market through an investment in one of the largest airports in Japan, according to a Reuters report. If the deal materializes, the company would form a part of a consortium owing to its massive scale. The bank proposes to fund this investment from its GS Infrastructure Partners II fund.

Goldman is eyeing the New Kansai International Airport for the investment once the operating rights for the sale are in place. The government owned airport, located on an artificial island in Osaka Bay, started its operations in Sep 1994 and now stands as the fifth-busiest airport in Japan.

In Dec 2013, the New Kansai International Airport revealed its plans to auction its operational rights. The move is an effort by the Japanese government to relief the debt burden of the airport that stands at 1.2 trillion yen. The deal is anticipated to garner up to 600 billion yen through the sale.

Though infrastructural deals fetch lower yields, Goldman will benefit in the future as such deals drive consistent revenue in the long run.

The proposed move seems to be an aftermath of Abenomics – a set of fiscal and monetary policies initiated by Japan’s Prime Minister Shinzo Abe in 2012 to promote sustainable economic growth and recovery after the financial crisis and Fukushima disaster in 2011. These economic policies include increased spending on public infrastructure, encouraging private investments, devaluation of the yen and quantitative easing, which attracts foreign investors.

However, such policies are currently facing a setback, owing to a continuous decline in Japan’s economic recovery. Notably, Japan’s gross domestic product (GDP) improved 1.0% on an annualized basis while it was down 1.1% sequentially in the quarter ended Dec 2013.

As the government is set to promote more private investments in varied infrastructure projects that include highway, sewage system and other public utility facilities, investors like Goldman can tap opportunities owing to the numerous projects in the pipeline, which is beyond the government’s budget.

Notably, Goldman possesses an impressive footprint in Japan through its equity investments over the last 10 years. Further, the company established a firm – Japan Renewable Energy that deals in solar, wind and other renewable energy projects.

Among others, owing to the lucrative incentives offered by the government to lure private investors, U.S. asset management firm Fortress Investment Group LLC (NYSE:FIG) is set to augment its investment in Japan’s infrastructure market by raising 200 billion yen.

Goldman currently holds a Zacks Rank #2 (Buy). Some better-ranked stocks worth considering includeInvestment Technology Group Inc. (ITG) and LPL Financial Holdings Inc. (LPLA). Both the stocks carry a Zacks Rank #1 (Strong Buy).

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GOLDMAN SACHS (GS): Free Stock Analysis Report

INVEST TECH-NEW (ITG): Free Stock Analysis Report

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