Warren Buffett’s Berkshire invests $6bn in five commodities trading firms in Japan

The move marks one of the biggest forays of the billionaire investor into Asia’s second-largest economy

Warren Buffett’s Berkshire Hathaway has taken stakes in five of Japan’s biggest trading companies. AP

Warren Buffett’s Berkshire Hathaway 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 per cent in Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Company and Sumitomo Corporation over the past 12 months, the US conglomerate said in a statement. The investments were valued at more than $6 billion (Dh22bn) combined after shares of all five companies jumped at least 5 per cent in Tokyo trading on Monday.

While Mr 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 $4bn agreement to purchase most of Dominion Energy’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 towards 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.

Mr Buffett’s wager could help bolster sentiment towards both commodity plays and Japan itself. The $5 trillion economy is not only grappling with a persistent coronavirus outbreak and the postponement of the Tokyo Olympics, it is 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 per cent on Monday, pacing regional gains and snapping three days of losses. Foreign investors have sold a net $43bn 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,” Mr 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 Mr 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. They have spent the past 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 the central role they play in Japan’s supply chain, these companies may have appealed to Mr Buffett in part because the country has a reputation for trusted accounting, Mr Pham said. Mr 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, Mr Pham added.

Berkshire said it plans to hold its investments in Japanese firms over the long term and has pledged to only own as much as 9.9 per cent of shares in any of the five companies, unless given specific approval by the investee firm’s board of directors.

Mitsui said it was not 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 could not immediately comment.

Mr Buffett’s investments mark a notable push abroad by his firm, which has long had its biggest holdings in US companies including Apple and Coca-Cola Co. Mr Buffett said in 2018 that there was a good number of countries he would be willing to invest in.

Berkshire’s offshore holdings include China’s BYD through its energy business and Brazilian payment company StoneCo.

Berkshire has piled deeply into various industries before, taking stakes in four major US 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 US banks.

Mr Buffett, who celebrated his 90th birthday on August 30, has built Berkshire into a conglomerate valued at more than $521bn, with operations ranging from insurers to industrial giants such as Precision Castparts and retailers such as Fruit of the Loom. Berkshire’s equity portfolio tottaled about $207bn at the end of June, while its cash pile grew to a record $146.6bn. Its shares have slipped 3.6 per cent this year, versus an 8.6 per cent gain for the S&P 500 Index.