Warren Buffett, the stock god, suddenly took action.
The latest news is that Berkshire Hathaway, a subsidiary of Buffett, has officially applied for the issuance of Japanese yen senior notes. Buffett's latest move has instantly sparked market speculation that he may further increase his investment in the Japanese stock market.
The current market focus is on which targets will Buffett increase his holdings in? Some investors believe that if Buffett further invests in the Japanese stock market, the likelihood of buying the target is still among the top five Japanese companies. From a fundamental perspective, the performance of Japan's "Big Five" companies continues to strengthen, and dividend and repurchase efforts are also increasing, which clearly aligns with Buffett's consistent investment style.
It is worth noting that just as Buffett suddenly took action, foreign investors continued to sell Japanese stocks. According to the latest data disclosed by the Japan Stock Exchange Group, foreign investors sold a net of 1.18 trillion yen (approximately 56.2 billion yuan) of Japanese stock spot and futures in the week ending March 29, reaching the highest level since the last week of September 2023.
Buffett's sudden move
On April 9th local time, Bloomberg reported that Berkshire Hathaway, a subsidiary of Warren Buffett, has officially applied for the issuance of yen senior notes.
Buffett's latest move has instantly sparked market speculation that he may further increase his investment in the Japanese stock market.
Affected by this, the stock prices of the five major Japanese companies (Itochu Corporation, Marubeni, Mitsubishi Corporation, Mitsui Corporation, and Sumitomo Corporation) held by Buffett collectively rose during the trading session today. Mitsubishi Corporation and Mitsui Corporation both rose more than 3%, while Sumitomo Corporation, Marubeni, and Itochu Corporation rose 2.8%, 2.2%, and 1.4% respectively.
Buffett's latest move has directly driven the Japanese stock market to strengthen. As of the close on April 9th, the Nikkei 225 index rose more than 1% to 39773.13 points, marking two consecutive trading days of gains.
Looking back, Berkshire issued approximately $800 million in Japanese yen bonds in November 2023, and subsequently increased its holdings in Japanese stocks. In a letter to investors in February this year, Berkshire stated that most of its current investments in Japan are funded through Japanese yen bonds.
At present, Berkshire has become one of the largest overseas issuers of Japanese yen bonds, choosing Japanese yen 32 out of its past 40 bond issuances. Nomura Senior Credit Analyst Kazuma Ogino said that Berkshire has issued a large number of Japanese yen bonds in the past, with a total size of over 100 billion yen, indicating the attractiveness of the Japanese market.
According to Japanese media, Berkshire's Japanese yen bond issuance is expected to take place in the next few days, but the exact amount is currently unknown, and it is unclear how Berkshire will allocate the funds raised.
It is worth noting that Berkshire will become the first large non-financial overseas bond issuer to issue Japanese yen bonds in the Japanese market after the Bank of Japan lifted its 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%, marking the first rate hike since 2007 and bringing an end to the 8-year era of negative interest rates.
Media analysis suggests that there are signs that Bank of Japan Governor Kazuo Ueda is not in a hurry to raise interest rates again. Against this backdrop, the credit spread of Japanese yen bonds (i.e. the additional yield relative to risk-free benchmarks) has narrowed to its lowest level since September 2022. Investors now require a credit spread of approximately 52 basis points for corporate bonds, lower than 67 basis points a year ago.
Who is Buffett targeting?
The current market focus is on which targets will Buffett increase his holdings in the Japanese stock market after the fundraising is completed?
Some investors believe that if Buffett further increases his investment in the Japanese stock market, the likelihood of buying into Japan's "Big Five" companies is still high. From a fundamental perspective, the performance of Japan's "Big Five" companies continues to strengthen, and dividend and repurchase efforts are also increasing, which clearly aligns with Buffett's consistent investment style.
Taking Itochu Corporation as an example, it announced that the total dividend payout rate for the fiscal year ending in March next year will be increased to 50%. Starting from April this year, the company's comprehensive net profit target for the new fiscal year is 880 billion yen, a 10% increase from the previous fiscal year's target of 800 billion yen.
In addition, Marubeni has raised its annual dividend forecast from 78 yen per share to 83 yen per share; In February of this year, Mitsubishi Corporation also announced that it would repurchase up to 500 billion yen of stocks, after completing a buyback of approximately 300 billion yen by the end of 2023.
Buffett stated in his shareholder letter that diversified business, high dividends, high free cash flow, and prudent issuance of new shares are important reasons for his preference for the "Big Five" companies.
Looking back at Buffett's purchase of the five major Japanese companies, it is not difficult to see his level of liking for these five Japanese stocks.
In August 2020, Berkshire announced for the first time that it would passively hold a 5% stake in the top five Japanese companies;
In June 2023, Berkshire announced that it had increased its shareholding to over 8.5%;
In February of this year, in a shareholder letter released, Buffett revealed that Berkshire already holds approximately 9% of the shares in the five aforementioned companies.
Regarding how long it will be held, Buffett stated in a shareholder letter that he will continue to hold shares in the "Big Five" companies for the long term. He revealed that Berkshire plans to hold these investments for 10 to 20 years.
From the current point of view, the massive purchase of Japan's "Big Five" companies is undoubtedly one of Buffett's most successful investments in recent years.
Since Berkshire acquired these five stocks in 2020, the average increase has exceeded double. The Japanese stock market has been soaring all the way, with the benchmark Nikkei 225 index surpassing its historical high of 38957.44 points in 1989, reaching a new historical high.
At present, Berkshire has invested a total of 1.6 trillion yen in these five Japanese companies. With the depreciation of the yen exchange rate in recent years, Berkshire's unrealized US dollar return rate by the end of 2023 has reached 61%, with an unrealized US dollar return amount of 8 billion US dollars (approximately 58 billion yuan).
Japanese stocks, sold by foreign investors
It is worth noting that just as Buffett suddenly took action, foreign investors continued to sell Japanese stocks.
According to the latest data disclosed by the Japan Stock Exchange Group, foreign investors sold a net of 1.18 trillion yen (approximately 56.2 billion yuan) of Japanese stock spot and futures in the week ending March 29th. The data shows that this is the highest level since the last week of September 2023.
In terms of spot sales, overseas investors sold 213 billion yen worth of stocks, reaching a new high since December last year. At the same time, Japanese retail investors purchased 444 billion yen in the week ending March 29th, with net sales in the previous week.
Analysts point out that the main reason for foreign investors selling off is profit taking from the leading global rise in the Japanese market, and some funds are adjusting their positions at the end of the quarter.
Another reason for overseas institutions reducing their holdings in the Japanese stock market is the decline in the attractiveness of Japanese stocks relative to emerging markets after a significant rise. Meanwhile, the planned reduction of ETF funds by the Bank of Japan is also a potential risk point for investors.
Therefore, Buffett's sudden move also surprised the market. Has he smelled new market opportunities?