What Buffett’s $ 6 billion Japanese bet reveals about a changing world
William Pesek is an award-winning Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades”.
Is Warren Buffett betting on Japan or against Donald Trump’s America?
A bit of both, it seems. News this week that the Sage of Omaha made a $ 6.2 billion bet on a largely forgotten industry – the centuries-old Japanese trading houses – seemed quite the opposite.
This puzzle hit the headlines a week after his 90th birthday, when observers were already wondering why in the world Buffett was putting tokens on gold. And now the epitome of the old Japanese economy?
Perhaps the best way to see Buffett’s interest in Itochu, Marubeni, Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. is through the Moneyball lens, Michael Lewis 2003 looks at how two men, using data and out of The Long-held Bias Think Tank, recreated overall – and cheaply – a dream team ready to score big.
Buffett is indeed recreating his conglomerate Berkshire Hathaway as a whole, with five Japanese players long undervalued on the corporate playground. Certainly, few would think of these so-called sogo shosha giants like a dream team. But when you consider Buffett’s decades-long game plan, the strategy makes sense. Famous, he enjoys cash-rich and unloved businesses run by knowledgeable people he can understand.
These five pillars of Japan Inc. hold few surprises, but have quietly increased their games over the past decade. In the past, trading houses largely bet on the prices of raw materials, often energy and steel. For decades, they have helped produce the fuel, literally, to power the resource-scarce Japanese economy. But they’ve spent the dozen years since Lehman’s shock reducing debt and focusing on industries ranging from machinery and food to financial services and partnerships with Fast Retailing’s Uniqlo brand.
If you think of the Buffett bookend industry, sogo shosha have come a long way since the legend of value investing first visited Japan. In November 2011, eight months after a nuclear crisis in Fukushima, Buffett flew by helicopter to nearby Iwaki and announced plans for a “big investment” in Japan. Well, that’s exactly what he did. Most interesting, however, is what Buffett’s recent moves can say about his take on the global economy.
The yen, for example, could be about to soar. Buffett’s decision to acquire a 5% stake each in Japanese trading houses is a classic cover. It makes less sense, however, if the US dollar remains stable or stronger. This would limit his returns. It now seems prescient in light of Prime Minister Shinzo Abe’s sudden departure. Buffett’s bet on Japan comes as COVID-19 pushes investors into a risk-free squat. The yen tends to soar at these times. Gold too, which could shed light on Buffett’s position in mining giant Barrick Gold.
When Buffett built his position in Japan over the past 12 months, he couldn’t have known that Abe would bow out. The upcoming leadership battle, however, makes traders doubt Tokyo’s commitment to a weaker yen. The question remains open whether Bank of Japan governor Haruhiko Kuroda, whom Abe has hired, will remain. Or, could Kuroda view the new leadership as a chance to recalibrate asset purchases in a way that pushes the yen up.
Buffett also appears to be giving US President Trump’s economy the green light. What else can you conclude when Buffett strives to diversify a loaded portfolio of US companies? To date, Buffett’s overseas investments have been scarce. Aside from Chinese electric vehicle maker BYD, German motorcycle clothing retailer Detlev Louis, and Israel’s IMC International Metalworking, there are few sensational bets to note.
Among the roughly $ 11 billion in shares that Berkshire abandoned in the first half of 2020 are JPMorgan and Wells Fargo. He abandoned American Airlines, Delta Air Lines, Southeast Airlines and United Airlines. Buffett, meanwhile, could increase his stakes in the five Japanese trading houses to 9.9%.
Finally, Buffett is generally optimistic about Asia. Japanese stocks look cheap to the world’s most famous value investor. But it’s rapid growth in China, Indonesia, Vietnam and elsewhere in the world’s most dynamic region that Buffett could play as the COVID-ravaged United States loses its appeal. “Buffett’s bet on Japanese trading houses is a bet on the economic resilience of Asia and the vast network of partnerships and companies of companies in the region,” said Jeff Kingston, head of Asian studies at the campus. of Temple University in Tokyo.
These companies, he adds, “have a good track record, know the lay of the land, and represent the nimble side of Japan, Inc., resisting slowdowns and missteps, and are a sure way to tap into a growing Asia. booming at a good price. It’s not so much a Japanese play but rather a bet on Asia with Japanese legal protections. “
There are a myriad of other takeaways. The first is that Buffett maybe betting fossil fuels will be around longer than many believe. As Japanese trading houses diversify, they are deeply entrenched in high carbon industries. Is Buffett looking for cover against Apple, one of his top four holdings? The sogo shosha set seems an ideal anti-tech hedge.
Even so, the biggest investor of American celebrities coming to Japan to play ball is sure to attract impersonators in their path. Japanese companies have spent the past decade preparing for this exact moment.