Stocks of Japan’s leading trading houses surged on Tuesday, after Warren Buffett’s Berkshire Hathaway Inc. announced plans to moderately increase its holdings in this sector.
The announcement was widely viewed as a vote in confidence for companies like Mitsubishi Corp.
Mitsubishi soared 9.2% on the Tokyo stock exchange, heading towards its biggest gain in a single day in a whole year.
Marubeni jumped 8% while Mitsui & Co. Itochu Corp. and Sumitomo Corp. saw their biggest rallies since August.
The Topix index as a whole, however, fell 0.2%.
Buffett’s long term bet on Japan’s trading giants
Berkshire Hathaway invested in Japan’s major trading houses initially in 2020. At the time, it pledged to keep its stake under 10%.
In his annual letter to investors dated February 22, Buffett revealed the firms had agreed on a slight relaxation of this cap, allowing Berkshire an increase in its ownership.
Analysts see Buffett’s decision as a calculated wager on Japan’s trading companies, which are involved in a wide range of businesses from energy and commodities, to retail and finance.
Diversification of the sector is seen as a way to protect against market volatility in times of global economic uncertainty.
“Trading Houses are trading below their peak so Buffett likely sees this as an opportunity to buy more,” Norikazu Shimizu said, an analyst with IwaiCosmo Securities Co.
“With Trump’s presidency, and changes in tariff policy, the market outlook is uncertain. But these companies have a wide enough footprint to stay stable.”
Trading firms welcome Berkshire’s deepening involvement
Marubeni responded positively, stating that Buffett’s investment confirmed the strong valuation of Japan’s trading companies.
Marubeni, in an email to Bloomberg, said that Buffett’s investment “is proof that trading companies, including our company, are highly valued.”
Itochu disclosed ongoing discussions with Berkshire regarding potential collaborations involving subsidiaries such as Duracell or Fruit of the Loom.
Buffett has previously praised Japan’s trading houses for their shareholder friendly policies, including responsible stock buybacks and dividend increases.
He also noted that their executive compensation was conservative compared to US companies.
The veteran investor said that Berkshire’s ownership in all five companies will likely increase over time.
“We are committed to their boards of directors and our holdings are for a very long time.”
The Topix index trades at a key metric that is about 10 times the estimated earnings of the trading houses, compared to a Topix index that trades at 14.5 times.
Buffett’s continued investments suggest he still sees value in this sector, despite the lower valuations.
Berkshire Hathaway: speculations about its next moves are increasing
Buffett’s growing interest in Japan’s trading companies has fueled speculation about his next financial move.
Berkshire has issued its largest yen-denominated bonds since it began borrowing Japanese currency in 2019.
Investors are watching closely how the company uses its capital in the region as yen notes mature in April.
Mitsubishi and Mitsui have both confirmed that they are in talks with Berkshire about potential joint investment.
Analysts believe Buffett’s involvement could provide investors with a sense of security and serve as a catalyst to further growth in Japan’s trading sector.
Hideyuki ishiguro, Nomura Asset Management’s chief strategist, said: “This is a tailwind to trading company stocks in general, and it appears likely to lead a certain security to investors.”
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