Source: Broker China
Author: Zhou Le

According to the latest news, Buffett's$Berkshire Hathaway-A (BRK.A.US)$/$Berkshire Hathaway-B (BRK.B.US)$An official application has been made to issue Japanese yen senior notes. Buffett's latest move instantly sparked market speculation, and it may further increase investment in the Japanese stock market.

The current focus of the market is on which targets will Buffett increase his holdings? Some investors believe that if Buffett invests further in the Japanese stock market, there is a high probability that the target of the purchase will still be Japan's “Big Five Trading Companies.” From a fundamental perspective, the performance of Japan's “Big Five Trading Companies” continues to strengthen, and dividends and repurchases are also increasing. This is clearly in line with Buffett's consistent investment style.

It is worth noting that at a time when Buffett suddenly took action, foreign investors continued to sell Japanese stocks. According to$Japan Exchange Group (8697.JP)$According to the latest data disclosed by the Group, foreign investors had a net sale of 1.18 trillion yen (approximately RMB 56.2 billion) of Japanese stock spots and futures in the week ending March 29, the highest level since the last week of September 2023.

Buffett made a sudden move

On April 9, local time, Bloomberg reported that Buffett's Berkshire Hathaway has officially applied to issue Japanese yen senior notes.

Buffett's latest move instantly sparked market speculation, and it may further increase investment in the Japanese stock market.

Affected by this, Buffett owns Japan's “Big Five Trading Companies” ($ITOCHU (8001.JP)$,$Marubeni (8002.JP)$,$Mitsubishi (8058.JP)$,$Mitsui (8031.JP)$und$Sumitomo (8053.JP)$) Stock prices rose collectively today. Among them, Mitsubishi Corporation and Mitsui & Co., Ltd. both surged more than 3%, while Sumitomo Corporation, Marubeni, and ITOCHU Corporation rose 2.8%, 2.2%, and 1.4%, respectively.

Buffett's latest move has also directly strengthened the Japanese stock market. By the close of April 9, the Nikkei 225 Index had risen more than 1% to 39773.13 points. It had been rising for 2 consecutive trading days.

Looking back, Berkshire sold about 800 million US dollars of yen bonds in November 2023, after which the company increased its holdings in Japanese stocks. In a letter to investors in February of this year, Berkshire said that most of its current investments in Japan are funded through Japanese yen bonds.

Currently, Berkshire has become one of the largest overseas issuers of Japanese yen bonds, choosing yen 32 times out of 40 bond issues in the past. Kazuma Ogino, senior credit analyst at Nomura, said that Berkshire has issued a large number of yen bonds in the past, with a total scale of over 100 billion yen, which shows the appeal of the Japanese market.

According to Japanese media, Berkshire's issuance of Japanese yen bonds is expected to take place within the next few days, but the exact amount is unknown, and it is unclear how Berkshire will allocate the funds raised.

Notably, Berkshire will be the first large-scale non-financial overseas bond issuer to issue yen bonds in the Japanese market after the Bank of Japan abolishes the negative interest rate policy.

The Bank of Japan announced its latest interest rate decision in March, raising the benchmark interest rate from -0.1% to 0-0.1%, the first rate hike since 2007, ending the 8-year negative interest rate era.

According to media analysis, there are signs that Bank of Japan Governor Kazuo Ueda will not rush to raise interest rates again. Against this background, the credit spread on yen bonds (that is, additional yield compared to the risk-free benchmark) has narrowed to the lowest level since September 2022. Investors now require a credit spread of about 52 basis points for corporate bonds, down from 67 basis points a year ago.

Who is Buffett eyeing?

The current focus of the market is on which targets will Buffett increase his holdings in the Japanese stock market after the capital raising is completed?

Some investors believe that if Buffett further invests in the Japanese stock market, there is a high probability that the target of the purchase will still be Japan's “Big Five Trading Companies.” From a fundamental perspective, the performance of Japan's “Big Five Trading Companies” continues to strengthen, and dividends and repurchases are also increasing. This is clearly in line with Buffett's consistent investment style.

Take ITOCHU Corporation as an example. It announced that the total dividend payout ratio for the fiscal year ending March next year will increase to 50%. For the new fiscal year starting in April this year, the company's comprehensive net profit target is 880 billion yen, an increase of 10% over the previous fiscal year's target of 800 billion yen.

In addition, Marubeni also raised its annual dividend forecast from 78 yen/share to 83 yen/share; in February of this year, Mitsubishi Corporation also announced that it would repurchase up to 500 billion yen of shares. Previously, the company had completed a repurchase of about 300 billion yen by the end of 2023.

Buffett said in a shareholder letter that diversified business, high dividends, high free cash flow, and prudent issuance of new shares are important reasons why it favors the “Big Five Trading Companies.”

Looking back at Buffett's move to buy Japan's “Big Five Trading Companies,” it's not hard to see how much he is interested in these five Japanese stocks.

In August 2020, Berkshire announced for the first time that it would passively hold 5% of Japan's “Big Five Trading Companies”;

In June 2023, Berkshire announced that it had increased its shareholding ratio to more than 8.5%;

In February of this year, in a shareholder letter issued, Buffett revealed that Berkshire already holds about 9% of the shares in the five companies mentioned above.

Regarding how long he will hold it, Buffett stated in a shareholder letter that he will continue to hold shares in the “Big Five Trading Companies” for a long time. He revealed that Berkshire plans to hold these investments for 10 to 20 years.

Judging from the current point of view, the massive purchase of Japan's “Big Five Trading Companies” is undoubtedly one of Buffett's most successful investments in recent years.

Since Berkshire bought these five stocks in 2020, the average increase has more than doubled. The Japanese stock market made great strides, and the benchmark index Nikkei 225 surpassed the previous historical value of 38957.44 points in 1989, reaching a record high.

Currently, Berkshire's investment costs in these five Japanese companies total 1.6 trillion yen. As the yen exchange rate declined in recent years, Berkshire's unrealized dollar yield reached 61% at the end of 2023, and the amount of unrealized dollar revenue reached 8 billion US dollars (approximately RMB 58 billion).

Japanese stocks, foreign sales and sales

It is worth noting that while Buffett suddenly took action, foreign investors continued to sell Japanese stocks.

According to the latest data disclosed by the Japan Exchange Group, foreign investors net sold 1.18 trillion yen (approximately RMB 56.2 billion) of Japanese stock spot and futures in the week ending March 29. According to the data, this was the highest level since the last week of September 2023.

On the spot side, overseas investors sold 213 billion yen of shares, a record high since December last year. Meanwhile, Japanese retail investors purchased 444 billion yen in the week ending March 29, which was a net sale the previous week.

Analysts pointed out that the main reason for the sell-off by foreign investors was to profit from the leading global rise in the Japanese market, and some funds were making position adjustments at the end of the quarter.

Another reason why overseas institutions reduced their holdings in the Japanese stock market was the decline in attractiveness of Japanese stocks compared to emerging markets after a sharp rise. At the same time, the Bank of Japan's planned ETF fund holdings reduction is also a potential risk point for investors.

As a result, Buffett's sudden move also surprised the market. Did he smell new market opportunities?

Editor/jayden