(Bloomberg ) — Warren Buffett stunned Tokyo markets last August with a $6 billion bet on five of the country’s biggest business houses.
A year later, his investment is paying off. The collective value of Berkshire Hathaway Inc’s stakes in five “sogo shosha” has soared by nearly $2 billion, amid a boom in commodity prices. Gains of more than 30% have outpaced the 21% growth of the benchmark Topix Index, and do not account for dividend income.
Although his stakes in resource-heavy firms have been successful, the man sometimes referred to in the Japanese media as the “god of investment” has not grown to an international follower base. Instead, many investors shy away from the pandemic and uncertainty over political leadership.
“They bought at a good time,” said Hideki Kuribara, an analyst at Tokai Tokyo Securities Company. I am hopeful that he will stay for a long time, and that these investments can be successful in the long run. It’s just what you’d expect from him.”
Five firms — Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. Ltd. and Sumitomo Corp. — seem an unusual fit for Buffett’s “buy-what-you-know” philosophy. But with those investments coming just days after Shinzo Abe’s announcement he would step down as prime minister — introducing the first leadership change in more than seven years — many expected the Buffett brand to be new to Japanese markets. Will arouse foreign interest in full swing.
At the time, Japan was facing a pandemic earlier than most economies and Yoshihide Suga was soon to take over as prime minister with near-record popularity.
Initially, equities rallied after Buffett’s money came in, with the Nikkei hitting 30,000 in February for the first time in 31 years. Since that peak, however, the Japan benchmark has gone into a steady decline.
For one thing, Covid-19 cases jumped as the country’s vaccination campaign lagged behind that of the US and Europe. Meanwhile, with Suga’s ratings plummeting as he heads into a general election, the Olympics in Tokyo has done little to burnish his image.
Foreign investors have net sold Japanese stocks for most of the week since Buffett’s investment. Topix’s 8.1% gain in 2021 lags behind the 21% for the S&P 500 index. As a result, Japan’s shares trade at a relative discount.
Dalton Investments said last week that the “unpopular” country has many gems at cheap valuations. Topix trades at 14x forward earnings, compared to 21x for the S&P 500.
While Berkshire has flagged that it could increase its stake in any of the five business houses to 9.9%, it has not yet reported any changes – shareholders are required to disclose that 1 percent in stakes. When does it rise or fall? Berkshire also has not reported other holdings in Japanese companies, a requirement if its stake reaches 5%.
The group sold 160 billion yen ($1.5 billion) of yen-denominated bonds earlier this year, prompting some speculation that it could be used.
“While it’s better for him to go up than go down, Buffett won’t be satisfied with a 30% return,” said Shuhei Abe, CEO of Sparks Group Company.