Warren Buffett credits Japan’s trading houses for their ‘superior’ shareholder-friendly policies, days after the country’s stock market broke a 35-year-old record

Connie Queline

Warren Buffett credits Japan’s trading houses for their ‘superior’ shareholder-friendly policies, days after the country’s stock market broke a 35-year-old record

Warren Buffett’s favorite Japanese trading houses climbed after he said in his letter to investors the companies follow shareholder-friendly policies that are “superior” to those practiced in the U.S.

Marubeni Corp. gained the most in four months, rising as much as 5.6% on Monday. The other four trading companies that Berkshire Hathaway Inc. holds—Mitsubishi Corp., Itochu Corp., Mitsui & Co., and Sumitomo Corp.—also rose, outperforming the broader market.

“Buffett used a lot of space in his letter to talk about Japanese trading firms,” which boosted investor confidence in the companies, said Mineo Bito, president of Bito Financial Services Co. in Tokyo. The U.S. investor took up about a page of his 16-page annual letter to shareholders to discuss the Japanese firms.

Buffett will likely increase his stakes in them as they’re still undervalued and there’s still room before reaching the maximum 9.9% stake limit that Berkshire has declared, said Bito, who has attended U.S. insurer’s shareholder meetings since 2014.

The gains come after the Nikkei 225 Stock Average reached an all-time high last week, driven by the weaker yen, a global tech rally and improving shareholder returns. Buffett’s renewed endorsement last year also supported overall confidence in the market. 

Japanese trading houses have surged to record highs since Buffett said in April that he would be raising his holdings in them. Mitsubishi, Japan’s biggest trading house, has surged about 111% over the past year, while Mitsui & Co. has jumped more than 70%.

Berkshire’s year-end unrealized gain in Japan’s five largest trading houses was $8 billion, it said in its earnings statement. It now owns about 9% of each of the five trading houses with the total cost coming to ¥1.6 trillion, it said. 

Buffett’s letter to stakeholders said that the five trading companies have reduced the number of their outstanding shares at “attractive” prices.

The companies’ managements have been “far less aggressive” about their compensation than in the U.S., the letter also said. The firms are applying only about a third of their earnings to dividends, and much of the rest are used to build their businesses and repurchase shares, it said. Berkshire reiterated the possibility to partner with their companies in the future.

Expectations and attention on trading companies are set to increase as they head toward earnings, as the stocks aren’t overvalued yet and Berkshire is likely buying on the premise of long-term holdings, said Masayuki Otani, chief market strategist at Securities Japan Inc. 

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