This week’s dramatic meltdown in global markets began in Japan – where Warren Buffett has significant investments – but losses were limited. Japan’s benchmark Nikkei 225 index plunged 12.4% on Monday, its worst day since “Black Monday” in 1987, triggering a domino effect around the world. The sell-off was triggered by a small rate hike by the Bank of Japan, taking rates to their highest level in 15 years and the removal of the yen “carry trade”. But the market managed to recoup most of its losses, ending the week down just 2.5%. Buffett’s shares initially fell 30%, but rebounded along with the broader market over the weekend. Buffett’s holding company, Berkshire Hathaway, owns 8% each of Japan’s five major trading companies – Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui Corporation and Sumitomo Corporation, with a total investment of approximately US$20 billion. Mitsui & Co. performed the worst this week, falling 6.2%, while Mitsubishi performed best, falling only 1.7%. Japanese trading companies also reported second-quarter earnings earlier this week, which mostly beat analysts’ expectations and maintained full-year guidance. Shares of Itochu and Mitsubishi are up more than 10% so far this year, while those of Marubeni, Mitsui and Sumitomo are up less than 10%. With $8 billion in paper profits, the Oracle of Omaha first began selling Japanese bonds in 2019 and used the proceeds to fund Berkshire’s purchase of stakes in five local groups of small businesses, known as general trading companies, that combine energy and metals, Various goods such as food and textiles are imported into resource-scarce Japan. By issuing yen bonds, Buffett is able to limit currency risk when buying stocks overseas. Despite the yuan’s surge over the past two weeks, the dollar has appreciated more than 30% against the yen since 2019. By the end of 2023, Berkshire had more than $8 billion in unrealized gains across five trading companies. Buffett disclosed his initial 5% investment in the two companies on his 90th birthday in 2020. The 93-year-old investment guru promised that his shareholding ratio would not exceed 9.9% unless approved by each company’s board of directors. Given that his current holdings are around 8%, the legendary investor is likely buying the dip during this week’s selloff. In April, Omaha-based Berkshire Hathaway priced an additional $1.7 billion worth of yen bonds, a sign that Buffett may be preparing to invest more money in Japan. Outside of Japan, Buffett was in a selling mood in the second quarter. Last week, before the global stock market crash, news broke that Buffett had sold off a large number of stocks, including half of his Apple shares, and raised an unprecedented bastion of cash for Berkshire in the second quarter. Many Buffett watchers viewed his prescient prediction as a negative forecast for the market and economy.
