Warren Buffett is betting on Japan as a focus of his investment empire in the next decade and gradually turning away from Chinese companies vulnerable to the mounting geopolitical tensions between mainland China and Taiwan.
The 92-year-old investor is in Japan this week meeting with the country’s five largest trading houses, Japan’s equivalent of American industrial conglomerates like Buffett’s Berkshire Hathaway (BRK.A). Berkshire recently increased stakes in each of the five firms to 7.4 percent from 5 percent because the deals were simply too good to pass up, Buffett said in an interview with CNBC today (April 12).
“They were companies that I generally understood what they did. Somewhat similar to Berkshire in that they owned lots of different interests,” Buffett said. “And they were selling at what I thought was a ridiculous price…I was confounded by the fact that we could buy into these companies.”
Japan’s trading houses are companies that source a wide range of products and materials globally and then often sell them to smaller, domestic firms. The five firms Buffet bought stakes in are Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni and Sumitomo.
Buffett noted these trading houses had an earnings yield as high as 14 percent. Earnings yield is a measure of a company’s profitability calculated as profit per share divided by share price. The higher the number, the more value investors are getting. Buffett said Berkshire plans to hold the investments for 10 to 20 years.
Warren Buffett reduces stakes in BYD and TSMC despite them being great businesses
Berkshire’s investments in these Japanese firms came just months after it scaled back on two of Buffett’s other Asian investments: Chinese automaker BYD and Taiwan’s chip giant TSMC. TSMC is a key supplier to Apple, of which Berkshire is also a large shareholder.
Between July and September last year, Berkshire bought a $4.1 billion stake in TSMC, only to sell nearly all of it by the end of last year—likely at a loss, based on TSMC’s share price during the last three months of 2022. The investment firm slashed its TSMC holdings by about 86 percent between September and December, according to a February regulatory filing. Berkshire also recently trimmed its stake in BYD to 10.9 percent from 11.13 percent.
In today’s CNBC interview, Buffett said BYD is “extraordinary” and TSMC is a “fabulous enterprise” but the geopolitical risk between these two companies’ home bases has become too big to ignore.
The People’s Republic of China claims Taiwan as its own, a claim Taiwan rejects. Tensions between Beijing and the democratically governed island have been rising in recent months, fueling speculations that a war may soon break out between the two regions.
“I re-evaluated that part of it,” Buffett said of his decision to reduce holdings in TSMC. “I didn’t re-evaluate the business, the management, or anything of the sort.”
“We’ll find things to do with the money that I’ll feel better about,” Buffett said of BYD.
