Shares of Warren Buffett’s favored Japanese trading houses soared following his endorsement of their shareholder-friendly policies in his recent letter to investors. Marubeni Corp. witnessed the most significant surge in four months, climbing as much as 5.6% on Monday. Other trading companies held by Berkshire Hathaway Inc. — Mitsubishi Corp., Itochu Corp., Mitsui & Co., and Sumitomo Corp. — also experienced gains, outperforming the broader market.
In his letter, Buffett praised the Japanese trading firms for their shareholder-friendly practices, which he deemed “superior” to those observed in the United States. This endorsement significantly boosted investor confidence in these companies, with Buffett dedicating a substantial portion of his annual letter to shareholders to discuss their merits.
According to Mineo Bito, president of Bito Financial Services Co. in Tokyo, Buffett’s focus on Japanese trading firms in his letter bolstered investor sentiment towards these companies. Bito predicts that Buffett may further increase his stakes in these firms, considering their undervalued status and the potential for expansion within Berkshire Hathaway’s 9.9% stake limit.
These gains come amid the Nikkei 225 Stock Average’s recent record high, fueled by a weaker yen, a global tech rally, and improving shareholder returns. Buffett’s renewed endorsement last year has also contributed to overall confidence in the Japanese market.
Japanese trading houses have experienced remarkable surges since Buffett announced his intention to raise his holdings in them in April. Mitsubishi, Japan’s largest trading house, has surged approximately 111% over the past year, while Mitsui & Co. has seen a jump of more than 70%.
Berkshire Hathaway revealed in its earnings statement that its year-end unrealized gain in Japan’s five largest trading houses amounted to $8 billion. The conglomerate now holds about 9% of each of these trading houses, with a total cost of ¥1.6 trillion.
Buffett’s letter highlighted the trading companies’ prudent capital allocation strategies, including reducing outstanding shares through buybacks at attractive prices. Additionally, the firms’ management practices, characterized by conservative compensation structures and substantial reinvestment of earnings into business growth and share repurchases, garnered praise. Berkshire reiterated the possibility of future partnerships with these companies.
As trading companies gear up for earnings announcements, expectations and market attention are likely to intensify. With stocks still considered undervalued and Berkshire’s long-term investment strategy in mind, these firms remain poised for continued interest and potential growth.
