Warren Buffett’s Berkshire Hathaway Inc. bought stakes in five of Japan’s biggest trading companies, adding to the billionaire investor’s wager on the commodities sector and marking one of his largest-ever forays into Asia’s second-largest economy.
Berkshire acquired the stakes of about 5 percent in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. over the past 12 months, the U.S. conglomerate said in a statement. The investments were valued at more than $6 billion combined after shares of all five companies jumped at least 5 percent in Tokyo trading on Monday.
While Buffett has stayed relatively cautious with his record cash hoard since COVID-19 rippled through the global economy, Berkshire has been adding to its commodities exposure with deals including a $4 billion agreement to purchase most of Dominion Energy Inc.’s natural gas pipeline and storage assets in July.
Valuations in the sector have trailed the broader stock market in recent years, dragged down by falling commodities prices and an investor rotation toward technology stocks that has accelerated during the pandemic. Most of the Japanese companies targeted by Berkshire are major players in the nation’s energy and raw-materials industries, trade at less than book value and offer higher dividend yields than the benchmark Topix index.
"These trading companies generate strong cash flow, they pay out a lot of dividends and they have businesses that can’t be easily replicated,” said Thanh Ha Pham, an analyst at Jefferies Japan Ltd.
Buffett’s wager could help bolster sentiment toward both commodity plays and Japan. The $5 trillion economy is not only grappling with a persistent coronavirus outbreak and the postponement of the Tokyo Olympics, it’s also going through a leadership transition after Prime Minister Shinzo Abe announced his resignation for health reasons last week. Japan’s benchmark Topix index climbed as much as 1.9 percent on Monday, pacing regional gains and snapping three days of losses. Foreign investors have sold a net $43 billion of Japanese shares this year, on course for the biggest annual withdrawals since 2018.
"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 the 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.”
While Buffett visited Japan after its 2011 tsunami and nuclear disaster, he has stayed mostly quiet on investments in the country until now.
Japan’s general trading houses, known as "sogo shosha” with roots dating back hundreds of years, supply the resource-poor nation with everything from natural gas to noodles, and have spent the last few decades transforming into conglomerates that hold equity stakes in hundreds of diverse companies around the world. While they operate in areas like textiles and machinery, they still derive much of their revenue from energy, metals and other commodities.
Aside from their valuations, dividends and central role in Japan’s supply chain, the companies may have appealed to Buffett in part because the country has a reputation for trusted accounting, Pham said. Buffett also has a lot of cash to invest, with a dearth of opportunities in his home market after share prices surged to record highs, Pham added.
Berkshire said it plans to hold the Japan investments for the long term and has pledged to only own as much as 9.9 percent of the shares in any of the five companies, unless given specific approval by the investee firm’s board of directors.
Mitsui said it wasn’t aware of the reasons behind Berkshire’s investment. Sumitomo said it will engage in dialogue with Berkshire, while Marubeni declined to comment. Itochu and Mitsubishi couldn’t immediately comment.
Buffett’s investments mark a notable push abroad by his firm, which has long had its biggest holdings in U.S. companies including Apple Inc. and Coca-Cola Co. Buffett said in 2018 that there was a good number of countries he’d be willing to invest in, although foreign firms didn’t turn to Berkshire for funding as quickly as U.S. companies might. Berkshire’s offshore holdings include China’s BYD Co. through its energy business and Brazilian payment company StoneCo Ltd.
Berkshire has piled deeply into various industries before, taking stakes in four major U.S. airlines in 2016, though it ended up selling those stocks in 2020 as the pandemic brought most air travel to a halt. The company is also a major investor in U.S. banks.
Buffett, who celebrated his 90th birthday on Aug. 30, has built Berkshire into a conglomerate valued at more than $521 billion, with operations ranging from insurers to industrial giants such as Precision Castparts Corp. and retailers such as Fruit of the Loom. Berkshire’s equity portfolio totaled about $207 billion at the end of June, while it’s cash pile grew to a record $146.6 billion. Its shares have slipped 3.6 percent this year, versus an 8.6 percent gain for the S&P 500 Index.