Warren Buffet’s Berkshire Hathaway Buys Stakes In Japanese Trading Houses, Diversifying From US Stocks

Warren Buffett’s conglomerate Berkshire Hathaway Inc. (BRK-A) has made a huge splash in Japan by buying 5% stakes in five leading trading companies. The investments are expected to boost sentiment in the world’s third largest economy.

Specifically, Berkshire Hathaway’s wholly owned subsidiary, National Indemnity Co., has purchased shares in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd. and Sumitomo Corp. over the past twelve months through on the Tokyo Stock Exchange.

Based on Friday’s closing prices, the five investments were valued at about $6.25 billion, CNBC reported.

“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffett said in a statement. “The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships. I hope that in the future there may be opportunities of mutual benefit.”

Subject to price changes, Berkshire Hathaway said it may increase its stake in any of the five investments up to a maximum of 9.9%. Buffett said his company does not seek to go above that 9.9% threshold unless it receives prior approval from the investee’s board of directors.

The company said it intends to hold onto its Japanese investments “for the long term.”

Berkshire Hathaway also explained that since it already holds 625.5 billion ($5.93 billion) of yen-denominated bonds – scheduled to mature between 2023 through 2060 – its investments in the trading houses will not leave it exposed to currency fluctuations.

In response to the investments, Itochu Chairman Masahiro Okafuji stated that Buffett’s interest in Japanese trading houses “will be a catalyst for revitalizing the industry.”

An Itochu spokesman said: “It’s bright news for not only the company but also Japan’s stock market,” Bloomberg reported.

The investments will also help shield Berkshire Hathaway from excessive dependence on the U.S. economy.

However, some analysts expressed surprise that Buffett would seek to buy Japanese trading houses, which have long been out of favor due to their significant exposure to volatile sectors like energy, metals and commodities.

“Their cheap valuation may have been an attraction,” Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo, told Reuters. “But it is un-Buffett-like to buy into all five companies rather than selecting a few.”

Although shares of the five trading houses jumped on Monday trading in Japan, only Itochu is up in value from last year.

Still, aside from Itochu, the other four names are trading a below book value – meaning, they fit Buffett’s value investment philosophy. In addition, Reuters reported, Buffett typically invests in industries he understands – and these trading houses have heavy exposure to real economy enterprises as steel and shipping.

Prior to these investments in Japan, almost all of Berkshire Hathaway’s holdings were in U.S.-based companies, although he has acquired stakes in Chinese automaker BYD Co., Brazilian payment fir, StoneCo Ltd., Israel’s IMC International Metalworking and Detlev Louis, a German motorcycle apparel retailer.

Typically, Buffett has made long-term investments in blue-chip American-based firms like Coca-Cola (KO).

Buffett also has a $125 billion stake in Apple (AAPL).

“Buffett’s portfolio is becoming heavily skewed to Apple, so maybe he was looking for something [that was] the complete opposite of Apple,” said Monex chief strategist Hiroki Takashi in Tokyo.

Moreover, Berkshire Hathaway is well-suited to make such investments – the company had a cash pile of a record $146.6 billion as of June 30.

Thanh Ha Pham, an analyst at Jefferies Japan Ltd. told Bloomberg: “These [Japanese] trading companies generate strong cash flow, they pay out a lot of dividends and they have businesses that can’t be easily replicated.”

But Buffett’s big bet in Japan came as global investors have withdrawn $43 billion from Japanese stocks, mostly shifting their cash to buoyant U.S. tech names, Bloomberg reported.

Buffett’s confidence in Japan trading stocks could help investor sentiment in both commodity plays and Japan itself, a country reeling from the impact of the COVID-19 pandemic and the sudden resignation of Prime Minister Shinzo Abe over his health.