Omaha-based holding firm Berkshire Hathaway announced Monday that it had increased stakes in Japanese stocks.
Berkshire's stakes in Itochu, Mitsubishi Corp, Marubeni, Sumitomo and Mitsui & Co average over 8.5 percent. The holding company first announced its shares in those Japanese companies in 2020. It said the additional purchases aligned with the plan to increase stakes up to 9.9 percent. Berkshire also plans to hold the stakes for the long term.
According to Berkshire, the total value of its Japanese investments is the largest of its public stock holdings outside the U.S. Berkshire's Japanese holdings belong to the "sogo sosha" category, meaning that these companies deal in a variety of sectors.
All five Japanese stocks held by Berkshire have gained more than 30 percent so far this year, with Marubeni shares rallying up to 62 percent. Since the end of 2020, Marubeni's stock has more than tripled in value. As of May, analysts estimated that Berkshire's Japanese portfolio grew up to 250 percent from its initial investments.
The American holding firm's decision to invest in Japanese stocks was "surprising." Berkshire CEO Warren Buffett used to focus on U.S. stocks. Shares of Bank of America, Apple, American Express, Chevron and Coca-Cola represented more than 75 percent of the total value of Berkshire's portfolio as of late March.
In May, Berkshire sold its holdings in Bank of New York Mellon and U.S. Bancorp, valued at $1.4 billion. At that time, Buffett said he was "cautious" about maintaining a significant number of bank stocks in Berkshire's portfolio. Analysts noted the instability in the American regional banking sector since March had prompted a sell-off in these stocks.
During the company's recent shareholder meeting, Buffett described his decision to bet on Japanese stocks as a "no-brainer," as these companies operated in a wide range of "familiar" sectors.
"They're doing intelligent things, and they're sizable, so we just started buying them," Buffett said last month. "We are $4 billion or $5 billion ahead plus dividends."
Japan's stock market to rally
Analysts said Buffett's growing portfolio in the Japanese equity market and the investor's optimism about the country's market prospects could support a rally in Japan's benchmark index, the Nikkei 225.
Despite falling by one percent on Friday last week, the Nikkei 225 has risen by 28 percent so far in 2023. Saxo Markets strategist Charu Chanana said Berkshire's recent announcement about the stake increase in Japan further increased optimism about the Japanese stock market.
"While it was previously hinted that Berkshire will increase its stake … the announcement has come somewhat sooner than expected and will further boost optimism on Japanese stock."
Charu Chanana, Saxo Markets strategist
According to analysts, the market also now pays attention to Japan's improving economic landscape and corporate governance reforms. The Japanese government revised its first-quarter gross domestic product growth estimates from 1.6 percent to 2.7 percent. Analysts also pointed out that the country's tourism sector had rebounded better than expected after the pandemic.
A new regulation has encouraged companies to increase shareholder returns. This change is expected to bring more investors to the market. The Tokyo Stock Exchange has also urged firms to boost their price-to-book ratios. JPMorgan said the new reforms would make the equity market's rally last longer than anticipated.
The Bank of Japan still maintains an "ultra-dovish" monetary policy, while many other central banks continue to hike their interest rates. The Japanese central bank's policy has helped maintain stability in financial markets.