Buffett’s bet on Japan | Financial Time
Even as the U.S. stock market climbed from its March nadir to its new all-time high – and ahead of this week’s nervousness attack – America’s most famous investor was foraying an entirely different market. Warren Buffett started building his first significant position in Japanese stocks months before the country’s longest-serving prime minister looked likely to step down.
But, in this case, the purchase by the founder of Berkshire Hathaway of significant stakes in the five large Japanese companies sogo shosha, or general trading houses, was revealed within two days of Shinzo Abe’s resignation.
Mr. Buffett appeared to be joining Abenomics as Abenomics officially ended. Its sudden, seemingly contrarian interest deserves the attention of an investment community that has long shunned the world’s third largest stock exchange. Foreign investors have been net sellers of Japan for nearly five years and remain underweight global portfolios.
For brokers, who have insisted that high-yielding, low-book Japanese stocks represent the best value in the world, Mr. Buffett’s $ 6 billion move could have huge implications – even if it does. seems equally negative. bet away from the bubbling US stock market as a positive bet on its Japanese counterpart.
In the United States, as the market soared, some fund managers began to admit they were nervous about a potentially messy and contested presidential election and other long-term damage from the coronavirus. Japan is seen as a place that has learned to live with an economy that after Covid other countries might start to look like. Mr. Buffett, however, is the first big name to move.
Global interest in investing in Japan tends to respond better to history than numbers. Smart money can take bets against the grain, but Japan needs a Pied Piper to tempt the less smart. When such a flute player emerged – Mr. Abe in the early years of his tenure as prime minister, or Junichiro Koizumi in the later years of his tenure – the momentum flows to Japan were significant and influential on the market, but relatively short-lived.
The inflows and outflows of Japanese stocks over the past two decades have unfortunately not been correlated with earnings. Japan’s pernicious “three D’s” (deflation, demographics and debt) have made it, for many global money managers, the place they can afford to ignore: you can be wrong and not lose your job . This is all the more true as the American rally was fueled by growth stocks, from Amazon to Tesla. For a decade, fund managers who bet on strong, well-valued value stocks have chronically underperformed.
If Mr. Buffett’s bet turns out to be the next big icon that attracts other foreign currencies to the locked value inside the Tokyo stock market, it is welcome but also important to understand as a leap of faith. He chose trading houses, not in spite of the notorious complexity of their business, but because he correctly guessed that the difficulty of assessing this complexity means that they are poorly evaluated. If he’s really interested in finding other pockets in the Tokyo market that offer bargain prices and reliable returns, there are plenty of them.
Yet by investing in Japan even as his Abenomics narrative evaporates, Mr. Buffett is making a statement, as a value investor, in the US domestic market and the tip of his current profile. He chose to make his statement using this market’s most visible antithesis: cash-rich, high-yielding, undervalued and unloved Japanese stocks. Investors hungry for new opportunities hope Mr. Buffett arrives early in a new profession, not late in an old one.