Berkshire Hathaway Expands Investments in Japan's Major Trading Companies

On Tuesday afternoon, the stocks of Japanese trading companies increased as Warren Buffett, the CEO and Chairman of Berkshire Hathaway, announced his intention to raise his current holdings in these companies. During an interview with Nikkei, Buffett expressed his satisfaction with his current investments in these firms and stated that he is considering investing further in five of Japan's major trading houses.

  • Following his comments, Mitsubishi Corp's shares rose by 2.7%, Mitsui & Co. increased by 2.6%, Itochu Corp climbed by 2.5%, Marubeni Corp. advanced by 3.7%, and Sumitomo Corp. saw a rise of 2.7%
  • In the coming week, Buffett plans to meet with these companies to discuss their businesses and show his support for them

Diversified Holdings

The sogo shosha, Japan's top five trading companies, are large corporations that import a variety of goods into the country, ranging from energy and metals to food and textiles. In addition to importing, they offer services to manufacturers and have played a significant role in the growth and globalization of the Japanese economy.

  • Buffett revealed to Nikkei that he currently owns 7.4% of Itochu, which is a slight increase from the 6.8% stake disclosed in November's regulatory filings
  • Last year, Berkshire Hathaway purchased additional shares in the five leading trading houses, raising its stake by at least 1% in each of them to more than 6%

As per November filings, Berkshire Hathaway's positions in Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni Corp., and Sumitomo Corp. stood at 6.6%, 6.6%, 6.2%, 6.8%, and 6.6%, respectively. According to another report by Nikkei, Berkshire Hathaway is preparing to issue yen-denominated bonds, indicating that the conglomerate may further increase its investments in Japan.

A Value Trap?

Concerns that Buffett was entering Japan's well-known "value trap" seem exaggerated now. The surge in worldwide interest rates and the bursting of the technology bubble have caused funds to flow back into the mundane but essential companies that Buffett admires. These trading houses supported by Berkshire are diversified conglomerates that deal with everything from retail to healthcare to commodities.

  • They have produced a total average return of 127% in local currency, compared to 25% by Topix Index constituents since Buffett disclosed his position
  • Since the trading houses are comparable to Berkshire in their holdings, Buffett claims that he is receptive to making deals with them and increasing his investments in Japan

Japan is still full of struggling conglomerates and investors who have been struggling with Japan Inc might want to observe what Buffett does next.

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.

Credits

Photo by Jezael Melgoza on Unsplash.