Global Market Turmoil Tests Warren Buffett's Japanese Investments: Despite Initial 30% Plunge, Berkshire Hathaway's $20B Bet On Japan's Trading Giants Recovers

The recent global market turmoil, which originated in Japan, has had a limited impact on Warren Buffett‘s substantial Japanese investments. Despite initial significant losses, the market managed to recover most of the decline by the end of the week.

What Happened: The Nikkei 225 index, a key indicator for Japanese stocks, plummeted by 12.4% last week, marking its worst performance since the 1987 “Black Monday.” This triggered a chain reaction across global markets.

The sell-off was prompted by a minor rate hike by the Bank of Japan, which raised rates to their highest in 15 years and unwound the yen “carry trade.” Despite this, the market was able to recoup most of its losses and finished the week down only 2.5%.

Berkshire Hathaway Inc. BRK BRK, Buffett’s holding company, holds an 8% stake in the five leading Japanese trading houses — ITOCHU ITOCY, Marubeni MARUY, Mitsubishi MSBHF, Mitsui & Co MITSF, and Sumitomo SSUMY. The initial plunge in these stocks, up to 30%, was followed by a recovery by the end of the week, in line with the broader market.

Berkshire owns an 8% stake in these five major Japanese trading houses with a total investment of around $20 billion. As of the end of 2023, Berkshire had unrealized gains of over $8 billion in these trading houses. Buffett initially disclosed his 5% investment in these companies in 2020 and has pledged not to exceed a 9.9% stake without board approval.

Despite the market turmoil, the Japanese trading houses reported second-quarter earnings that mostly surpassed analyst expectations and maintained their full-year guidance, according to a CNBC report.

Year to date, Itochu and Mitsubishi shares have risen by over 10%, while Marubeni, Mitsui, and Sumitomo have seen increases of less than 10%.

Outside Japan, Buffett sold significant stock holdings, including half of his Apple Inc. AAPL stake, raising substantial cash reserves for Berkshire in the second quarter.

See Also: Lawrence Summers Calls For SEC Investigation Into Unprecedented VIX Movement

Why It Matters: Buffett’s Japanese investments come at a time when his other major moves have drawn significant attention. Recently, Elon Musk commented on Buffett’s decision to sell nearly half of Berkshire Hathaway’s stake in Apple Inc.

Musk suggested that Buffett is “clearly expecting a correction” after Berkshire accumulated a cash reserve of almost $277 billion.

Buffett’s strategic shift towards Japanese trading houses and away from tech giants like Apple is also reflected in Berkshire’s increased holdings of U.S. Treasury bills. This move has led some to speculate whether Buffett is bearish or simply waiting for the right opportunity to invest.

Buffett’s influence extends beyond financial markets to philanthropy. Recently, he decided to allocate the majority of his remaining wealth to a new charitable trust managed by his children, diverting funds from the Gates Foundation.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote