(Bloomberg) — Warren Buffett shocked Tokyo’s markets last August with a $6 billion bet on the country’s five largest trading houses.
A year later, his investments are bearing fruit. Amid the surge in commodity prices, the collective value of Berkshire Hathaway Inc. in the five ‘sogo shosha’ increased by about $2 billion. That gain of more than 30% is higher than the 21% rise in the benchmark Topix index, and does not take into account dividend income.
While his stakes in the resource-rich companies have been a success, the man sometimes known in the Japanese media as the “god of investing” hasn’t sparked a tidal wave of international followers. Instead, many investors are sidelined by uncertainty about the pandemic and political leadership.
“He bought at a good time,” said Hideaki Kuribara, an analyst at Tokai Tokyo Securities Co. “I expect him to last for a long time, and over a long period of time these investments could be a success. It’s exactly what you would expect from him.”
The Five Firms – Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd. and Sumitomo Corp. – seem unusually consistent on paper with Buffett’s “buy-what-you-know” philosophy. But with those investments just days after Shinzo Abe announced he would step down as prime minister — triggering the first leadership change in more than seven years — many hoped the Buffett brand would spark renewed foreign interest in Japanese markets.
At the time, Japan weathered the pandemic better than most economies and Yoshihide Suga would soon take power as prime minister with near-record popularity.
Initially, stocks rose after Buffett’s money arrived, with the Nikkei hitting 30,000 for the first time in 31 years in February. However, since that peak, the Japanese benchmark has fallen steadily.
For starters, Covid-19 cases rose as the country’s vaccination campaign lagged behind that of the US and Europe. Meanwhile, Suga’s ratings have plummeted as he heads into the general election, while the Tokyo Olympics do little to polish his image.
Foreign investors have sold net Japanese stocks for the most weeks since Buffett’s investments. The Topix’s gain of 8.1% in 2021 is lagging behind the 21% for the S&P 500 index. As a result, Japanese stocks trade at a relative discount.
Dalton Investments said last week that the ‘unpopular’ country had many gems at cheap valuations. The Topix is trading at 14 times future earnings, compared to 21 times for the S&P 500.
While Berkshire said it could increase its holdings in one of the five trading houses to as much as 9.9%, it hasn’t reported any changes yet — shareholders must disclose when stakes rise or fall by 1 percentage point. Berkshire also has not disclosed other interests in Japanese companies, a requirement if the stake reaches 5%.
The conglomerate sold 160 billion yen ($1.5 billion) of yen-denominated bonds earlier this year, sparking some speculation about their use.
“While it’s obviously better for them to go up than down, Buffett won’t be happy with a 30% return,” said Shuhei Abe, the CEO of Sparx Group Co.
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