Buffett’s Berkshire Hathaway invests in Japan’s biggest five trading firms

on Aug 31, 2020
  • Buffett’s Berkshire Hathaway invests in Japan’s biggest five trading firms.
  • Berkshire may increase its stake to 9.9% in Japanese trading houses.
  • The U.S. conglomerate booked a £7.36 billion write-down from Precision Castparts.

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In an announcement on Sunday, Berkshire Hathaway Inc. (NYSE: BRK.A) said it invested in the biggest five trading houses in Japan equivalent to a 5% stake in each. Combined, Berkshire’s investment added up to £4.50 billion and expanded the conglomerate’s footprint outside of the United States. On the contrary, the American multinational conglomerate had recently slashed its stakes in the top U.S. banks.

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As of Friday’s close, Berkshire’s Class A shares have recovered more than 35% after hitting a year to date low in March due to COVID-19 disruptions. Compared to its per-share price at the start of the year, it is currently 4% down in the stock market.

Berkshire may increase its stake to 9.9% in Japanese trading houses

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On Sunday, chairman Warren Buffett’s 90th birthday, Berkshire said that its stake in Sumitomo Corp, Mitsui & Co Ltd, Mitsubishi Corp, Marubeni Corp, and Itochu Corp is also likely to broaden further to 9.9% at a later stage. According to Buffett:

“The five major trading companies have many joint ventures throughout the world and are likely to have more. I hope that in the future there may be opportunities of mutual benefit.”

Berkshire said that its investment in Japan will contribute to minimising its dependence on the world’s largest economy that suffered the sharpest contraction in the recent quarter in more than seven decades due to the Coronavirus pandemic that has so far infected more 6 million people in the United States and caused over 187 thousand deaths.

Several of Berkshire’s businesses have taken a hit in recent months due to the economic crisis, including a £7.36 billion write-down from Precision Castparts (aircraft parts manufacturer).

Trading houses have long been a turn-off for investors

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Buffett’s announcement came as a surprise for key market players on Monday as investors have long been wary of putting their money in trading houses. Chief investment strategist, Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities in Tokyo also commented on the news on Sunday and said:

“Their cheap valuation may have been an attraction. But it is un-Buffett-like to buy into all five companies rather than selecting a few.”

In related news, Berkshire had revealed plans of buying Dominion Energy’s natural gas assets in July for £3.2 billion.

Berkshire had performed fairly upbeat in the stock market last year with an annual gain of a little under 15%. It is currently valued at £391 billion and has a price to earnings ratio of 23.92.

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