To The Moon

June 19th, $Berkshire Hathaway(BRK.B)$ announces its further increase in holdings of Japan's Five Major Trading Companies!

After the close of the Japanese stock market on June 19th, Berkshire Hathaway announced that it will continue to increase its holdings in Japanese stocks. Through its wholly-owned subsidiary, National Indemnity Company, Berkshire Hathaway has raised its average stake in Japan's five major trading companies to over 8.5%.

The five major trading companies in Japan are $Itochu Corp.(ITOCY)$, $Marubeni Corp.(MARUY)$, $Mitsubishi Corp.(MSBHF)$, $Mitsui & Co., Ltd.(MITSY)$, and $Sumitomo Corp.(SSUMY)$.

These companies are the largest comprehensive trading companies in Japan. Documents submitted by the five major trading companies on June 12th show that Berkshire Hathaway holds a stake of 7.5% in Itochu Corporation, 8.23% in Mitsui & Co., Ltd., and 8.3% in Sumitomo Corporation, Mitsubishi Corporation, and Marubeni Corporation.

source: ETF.com

Analysts point out that this move by Berkshire Hathaway further demonstrates its long-term investment preparation in Japan. Depending on the prices, Berkshire Hathaway can increase its stake in any of these five investments up to a maximum of 9.9%.

Since 2023, with the continuous bull run of the Japanese stock market, the five stocks heavily invested by Warren Buffett have performed remarkably well. Mitsubishi Corporation's stock price has risen by over 64% year-to-date, Mitsui & Co., Ltd. has increased by approximately 20%, Marubeni Corporation has risen by over 65%, and Itochu Corporation and Sumitomo Corporation have increased by over 41%.

source: tradingview

Buffett's involvement in these transactions began in August 2020 when Berkshire Hathaway announced the acquisition of stakes exceeding 5% in Japan's five major trading companies. "They were selling for what I consider ridiculous prices," Buffett told CNBC last month.

With the continuous surge in the stock prices of the five major trading companies, Buffett has made substantial profits. According to data compiled by the media, Buffett's positions in Japanese trading companies have estimated profits of around $4.5 billion since 2020.

Since the beginning of 2023, the Japanese stock market has been leading the global markets, with the Nikkei 225 index reaching its highest level in 33 years. As of the close of June 19th, the Nikkei index has recorded a year-to-date gain of 27.9%.

At the same time, funds are flowing into Japanese ETFs at the fastest pace.

Resurgence of Japanese ETFs

After decades of stagnation, Japan is once again emerging as an investment destination.

The stocks of $WisdomTree Japan Hedged Equity Fund(DXJ)$ and $iShares Currency Hedged MSCI Japan ETF(HEWJ)$ have gained 31% and 29% respectively this year, including dividends.

Funds are flowing rapidly into the most popular Japanese ETF, $iShares MSCI Japan ETF(EWJ)$ , with AUM of $13.1 billion.

source: ETF.com

What's attracting investors?

Japan has suddenly become a more attractive source for corporate investments, which is driving economic growth.

Japan's GDP is growing at an annual rate of 1.6%, putting an end to years of deflation. The weakening yen also contributes to exports. The cheap yen provides significant cost advantages for Japanese exporters, as any income generated abroad is converted into stronger yen profits domestically.

UBS stated that investors generally believe that the yen will not continue to depreciate, and the possibility of the yen-to-dollar exchange rate continuing to fall below 140 is low.

Some analysts believe that investing in Japanese stocks may be a good choice regardless of yen volatility. Macro strategist Simon White stated that Japan offers one of the best global inflation hedges for global investors, and investing in the Japanese stock market can withstand the growing global price inflation.

To hedge or not?

Furthermore, some investors are concerned about hedging the risk of a weak yen against the dollar. This is why $WisdomTree Japan Hedged Equity Fund(DXJ)$ and $iShares Currency Hedged MSCI Japan ETF(HEWJ)$ have outperformed other Japanese ETFs this year.

On the other hand, $iShares MSCI Japan ETF(EWJ)$ invests in Japanese companies such as $Toyota(TM)$ and $Sony(SONY)$ but does not use currency hedging.

However, this does not mean that investing in Japanese ETFs is risk-free. The country is still grappling with issues such as an aging population and dependence on trade with China.

However, there is no doubt that Japanese stocks are relatively cheap. Purchasing inexpensive stocks denominated in a cheap currency provides investors with two potential winning opportunities.