Berksire Hathway Buys 5% Stake In Five Japanese Trading Companies

Berkshire Hathaway, an American multinational conglomerate, made a huge bet on Japanese trading companies. The company announced that it has purchased a 5% stake in each whose cumulative value based on the shares price on Monday is around USD 6.7 Billion. In the press release, it also said that it has 625.5 billion yen-dominated bonds (USD 5.93 Billion) outstanding which will mature at various dates between 2023 and 2060.

The five trading firms are Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co Ltd, and Sumitomo Corp. According to Berkshire, the company can see its stake increase to 9.9% in the foreseeable future. “The five major trading companies have many joint ventures throughout the world and are likely to have more,’’ the company’s Chairman Warren Buffet said in a statement.

The news of investment was marked by Buffet’s 90th birthday.”Their cheap valuation may have been an attraction,” said  Norihiro Jujito, at Mitsubishi UFJ Morgan StanleySecurities in Tokyo. “But it is un-Buffet–like to buy into all five companies rather than selecting a few,” he added.

“I am delighted to have Berkshire Hathaway participate in the future of Japan and the five companies we have chosen for investment,” Buffet said in the press release. “I hope in the future there may be opportunities of mutual benefit,” he added. The press release embraced its holding in successful companies such as Coca-Cola, American Express, and Moody’s.

Berkshire’s move would help them to expand their portfolio beyond the United States and would reduce their dependence on the economy. The company said that it has been buying the firms’ shares regularly since last year on the Tokyo Stock Exchange.  According to Stephen Innes, chief global market strategist for AxiGroup said the company’s’ investment comes amidst the weak US dollar.  The virus outbreak has hampered many of its businesses. For instance, its aircraft parts maker Precision Castparts wrote down USD 9.8 Billion.

These Japanese companies have a considerable deal in various industries such as energy, manufacturing, and technology. Its wide portfolio makes it a “hot commodity,” Innes added. The analyst also pointed out that earlier this month, Berkshire bought a stake in Barrick, a Canadian gold mining firm. For many of the investors, the company’s investment was a surprise as trading houses are not the enticing commodity for them. Further, Mitsui said that they are not aware of the reasons behind U.S. conglomerate investment.

Japan’s economy has been struggling due to the coronavirus outbreak which led to the postponement of the Tokyo Olympics. Moreover, the exit of its Prime Minister due to the health reasons has risen in the tension. According to Livemint, “foreign investors have sold a net USD 43 Billion shares this year, on course for the biggest annual withdrawals since 2018.”

After Berkshire announced that it has invested in these Japanese companies, their stock prices were undoubtedly up. As of Monday, Marubeni and Sumitomo rose by 9% while Mitsubishi and Mitsui stock were up by 7%. Meanwhile, the Itochu share price jumped by 4.2%. Amongst all these firms, Itochu is the only company whose shares price is higher than last year. “Buffet’s portfolio is becoming heavily skewed to Apple, so maybe he was looking for something complete opposite of Apple,” said Monex Chief strategist  Hiroki Takashi in Tokyo, reported Reuters.