Shares in Japan’s largest trading houses moved higher yesterday following Warren Buffett's Berkshire Hathaway decision to increase its holdings in them to around 10%.
The 94-year-old investor’s holding company raised its stake in Itochu Corp. (TYO:8001), Mitsui & Co. Ltd. (TYO:8031), Mitsubishi Corp. (TYO:8058), Sumitomo Corp. (TYO:8053), and Marubeni Corp. (TYO:8002) by more than 1 percentage point each, with stakes ranging from 8.5% to 9.8%.
As a result, shares in these five "sogo shosha" or trading houses – which include some of the country’s most valuable firms – were up between 3% and 4%. This underpinned a 1.6% jump in the Nikkei 225 index.
According to Hideyuki Ishiguro, chief strategist at Nomura Asset Management Co, Buffett’s decision to increase his stake in these firms signals that Japanese stocks are still relatively cheap.
“It’s a signal from Buffett” that it still has faith in shares of trading houses, which have been correcting since last year, he said.
Buffett’s decision to increase his stake in these firms wasn’t a complete surprise to the market given that he'd signalled these intentions earlier this year.
Buffett also indicated that these trading houses had agreed to “moderately” relax a previous 10% ceiling on his stakes.
Since disclosing his plans to increase his holdings in these stocks, the Topix - a gauge of the wholesale trading sector - has gained 7%, compared with 0.4% for the benchmark index.
Buffett began investing in these Japanese trading giants in 2019 due to their similarities - strong cash positions and relatively low valuations - with his flagship hedge fund.
Like Berkshire Hathaway, these trading companies also invest in a wide range of sectors domestically and abroad.
In a recent client note, Buffett advised investors that Berkshire had spent around $13.8 billion on its holdings in five trading houses. Berkshire expected dividend returns of $812 million in 2025.
Given that Buffett has used yen funds raised in the bond market to purchase holdings in Japanese companies, analysts are watching closely for any news relating to Berkshire’s yen bond issuance.
In October Berkshire sold its biggest-ever yen bond since its debut issuance in 2019 and has been a regular issuer of the Japanese currency.
