Here’s why Warren Buffett is bullish on Japanese stocks

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Billionaire investor Warren Buffett is bullish on Japanese stocks foreseeing a rise in commodity demand and identifying growth opportunities in undervalued stocks.

Buffett’s Berkshire Hathaway Inc. raised its stake in five Japanese trading houses to double down on some of his favourite stocks on June 20. The raised stake now amounts to an average of over 8.5 percent spread over the conglomerates of Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp. These conglomerates are engaged in diverse sectors ranging from gas trading and salmon farming.

The reasons why Buffett is confident about these five stocks and the Japanese market are:

  • The Topix Wholesale Trade Index has soared 39 percent in 2023-24.
  • The stocks have shown increasing growth potential.
  • Japan is now seeing stabilising inflation.
  • The commodity prices are high.
  • The stocks are currently available at cheaper valuations.

In 2020, Buffett recognized the surge in post-COVID pent-up demand, leading him to invest in several Japanese trading houses. In April 2023, he travelled to Japan for a series of meetings with executives from the trading firms during which the conglomerates reported substantial profit increases. Driven by high commodity prices and a weak yen, the Japanese stocks presented enticing investment opportunities that Buffett readily seized.

With his investments having doubled in returns over the course of three years, Buffett stated that “I’m always looking for good businesses to invest in, and Japan has a lot of good businesses”. In May this year, Buffett also stated that he is particularly interested in investing in technology companies and consumer staples companies.

Earlier this month, the Japanese index Nikkei reached a 33- year high, aided by the billionaire’s investment, signs of stable inflation and better shareholders. However, experts caution that the upside potential for these firms and Japanese equities overall may be limited. Hiroshi Namioka, the chief strategist at T&D Asset Management Co Ltd., believes that the market has already factored in Buffett’s anticipated further purchases.

In a filing to the exchanges, Berkshire Hathaway stated that “the company will make no purchases beyond that point unless given specific approval by the investee’s board of directors.”