🔒 Buffett boosts Japanese trading houses with investor letter endorsement, sparks market surge

In a notable endorsement, Warren Buffett praised Japanese trading houses in his investor letter, citing their superior shareholder-friendly policies over those in the US. Marubeni Corp. surged 5.6%, leading gains for Berkshire Hathaway’s holdings – Mitsubishi Corp., Itochu Corp., Mitsui & Co., and Sumitomo Corp. Buffett’s confidence in these firms prompted positive investor sentiment, with potential for increased stakes. Japanese trading houses have seen record highs, outperforming the market, driven by a weaker yen and improving shareholder returns, making them an attractive long-term investment for Berkshire.

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By Aya Wagatsuma

Warren Buffett’s favorite Japanese trading houses climbed after he said in his letter to investors the companies follow shareholder-friendly policies that are “superior” to those practiced in the US. ___STEADY_PAYWALL___

Marubeni Corp. gained the most in four months, rising as much as 5.6% on Monday. The other four trading companies that Berkshire Hathaway Inc. holds — Mitsubishi Corp., Itochu Corp., Mitsui & Co., and Sumitomo Corp. — also rose, outperforming the broader market.

“Buffett used a lot of space in his letter to talk about Japanese trading firms,” which boosted investor confidence in the companies, said Mineo Bito, president of Bito Financial Services Co. in Tokyo. The US investor took up about a page of his 16-page annual letter to shareholders to discuss the Japanese firms.

Buffett will likely increase his stakes in them as they’re still undervalued and there’s still room before reaching the maximum 9.9% stake limit that Berkshire has declared, said Bito, who has attended US insurer’s shareholder meetings since 2014.

The gains come after the Nikkei 225 Stock Average reached an all-time high last week, driven by the weaker yen, a global tech rally and improving shareholder returns. Buffett’s renewed endorsement last year also supported overall confidence in the market. 

Japanese trading houses have surged to record highs since Buffett said in April that he would be raising his holdings in them. Mitsubishi, Japan’s biggest trading house, has surged about 111% over the past year, while Mitsui & Co. has jumped more than 70%.

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Berkshire’s year-end unrealized gain in Japan’s five largest trading houses was $8 billion, it said in its earnings statement. It now owns about 9% of each of the five trading houses with the total cost coming to ¥1.6 trillion, it said. 

Buffett’s letter to stakeholders said that the five trading companies have reduced the number of their outstanding shares at “attractive” prices.

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The companies’ managements have been “far less aggressive” about their compensation than in the US, the letter also said. The firms are applying only about a third of their earnings to dividends, and much of the rest are used to build their businesses and repurchase shares, it said. Berkshire reiterated the possibility to partner with their companies in the future.

Expectations and attention on trading companies are set to increase as they head toward earnings, as the stocks aren’t overvalued yet and Berkshire is likely buying on the premise of long-term holdings, said Masayuki Otani, chief market strategist at Securities Japan Inc. 

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