Warren Buffett's Berkshire Hathaway has bought stakes in five Japanese trading companies that dominate the country's energy and raw-materials industries, thus adding to the billionaire investor's wager on the commodities sector. The combined investment is worth a whopping $6 billion after shares of all the five companies surged over 5 percent in Tokyo trading on Monday.
The announcement came on a day the billionaire investor turned 90 and marks one of his biggest-ever forays into Asia's second-largest economy. Berkshire Hathaway's massive investment in Asia comes as a surprise given that Buffett has always preferred investing in American companies. Although the bigger picture is yet not clear, Buffett investing in the commodities sector definitely hints at a possible outcome of this year's US Presidential Election.
Buffett's Surprise Move
Berkshire Hathaway said on late Sunday that it has acquired stakes of about 5 percent in Itochu, Marubeni, Mitsubishi, Mitsui & Co and Sumitomo over the past 12 months. The conglomerate's National Indemnity Subsidiary made the investments and officially notified Japanese regulators of the position during trading on Monday.
The news immediately sent the shares of these fives companies on a rally, surging more than 5 percent. Berkshire has the option to boost its stakes to 9.9 percent in any of the five companies. Buffett has pledged to notify the board of directors of the respective companies and seek approval if he decides to raise the stake beyond that point. "The five major trading companies have many joint ventures throughout the world and are likely to have more of these partnerships," Buffett said in a statement.
That said, Buffett's investment in these five companies come as a dual surprise. First, it shows Buffett increasing his commodities exposure amid falling commodities price in recent years. Second, Buffett has for years preferred investing his big money in the American market that too in the biggest of the names.
A Major Shift
Buffett's investment in these five companies marks a rare push away from the United States. He had famously said that "never bet against America." Buffett counts Apple and Bank of America as some of his biggest holdings. Moreover, the announcement comes at a time Japan's economy is not only struggling with a persistent coronavirus outbreak and the postponement of the Tokyo Olympics, but also is going through a leadership transition after Prime Minister Shinzo Abe announced his resignation for health reasons last week.
Buffett has been playing safe on the acquisition front since the coronavirus outbreak. He recently gave up his entire stake in all the major US airlines following the virus outbreak that ripped apart the entire sector. Instead, Berkshire Hathaway has been increasing its commodities exposure with deals including a $4 billion agreement to purchase most of Dominion Energy Inc.'s natural gas pipeline.
Buffett Hinting at Election Results?
Japan is basically an energy-poor nation. Its general trading houses, known as 'sogo shosha' that has its roots dating back to hundreds of years, supply the export-oriented nation with everything from natural gas to basic essentials. These 'sogo shosha' companies over the past few decades have focused more on transforming into conglomerates that hold equity in hundreds of diverse companies around the world. While they operate in areas like textiles and machinery, they still derive much of their revenue from energy, metals and other commodities.
Buffett's decision to purchase most of Dominion Energy's gas pipeline and his investment in these five Japanese companies is also a possible indication that Joe Biden is ahead in the race for the next US President.
Bidden has major plans for clean energy including a $2tn plan to eliminate all greenhouse gas emissions from the US electricity grid within 15 years that has been applauded by climate campaigners. Perhaps, Buffett's move toward investing in renewable energy is an indication toward that.