(Bloomberg) — Analysts suggest that Warren Buffett might be considering investments in Japanese financial institutions and shipping firms as Berkshire Hathaway Inc.’s (BRK-B) re-entry into the yen bond markets sparks speculation about his potential endeavors to invest in value stocks.
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This week, the billionaire’s company enlisted banks to oversee a yen bond issuance in the global market, indicating a possible increase in investments in Japan. Buffett previously noted in his annual letter in February that much of his prior investment in Japanese stocks was funded through yen bonds.
Eiji Kinouchi, chief technical analyst at Daiwa Securities Co., believes that insurers and shipping companies could be Buffett’s next investment targets. He noted that while trading firms gained from the bond sale news, their performance lagged behind the broader market, as mentioned in a research note this week. In contrast, shipping and insurance stocks have been among the top performers in the Topix index since August and may align with Buffett’s value investment strategy.
“If it’s not a trading company, it will have a significant impact on the entire market,” Kinouchi stated.
The renewed interest from Buffett, often referred to as the Oracle of Omaha, may boost Japanese stocks, as his backing for the five major trading houses previously helped elevate the Nikkei 225 (^N225) Stock Average to unprecedented heights earlier this year. An expansion of Berkshire’s investments into diverse sectors could support a market that has faced significant fluctuations due to political instability and currency changes.
Berkshire has yet to respond to inquiries made outside of regular hours in the U.S.
The valuations of Japanese banks and insurance companies declined following a substantial market selloff in August. Current estimated price-earnings ratios for the Topix insurance and bank indexes are recorded at 9 and 10.1, respectively, contrasting with 12.1 and 12.4 observed in early July when the broader market reached an all-time peak.
Takashi Ito, a senior strategist at Nomura Securities Co., also expressed optimism regarding Buffett’s potential acquisitions in the financial sector. “Japan’s financial sector exhibits solid fundamentals, which aligns with Buffett’s investment criteria,” he remarked.
A screening conducted by Nomura’s strategists, including Tomochika Kitaoka, identified Mitsubishi UFJ Financial Group Inc. (MUFG, 8306.T), Sumitomo Mitsui Trust Group Inc. (8309.T, SUTNY) and Sompo Holdings Inc. (SMPNY, 8630.T) as financial companies that correspond with the characteristics of Berkshire’s portfolio.
The adjustment in the Bank of Japan’s policy regarding interest rate hikes will enhance profitability in the sector, Ito explained.
Nonetheless, some observers of Buffett predict that his attention may still primarily be on trading companies, particularly following Berkshire’s recent divestment of Bank of America Corp. (BAC) shares.
“It’s hard to imagine him investing in Japanese bank stocks when he’s selling off that sector in the U.S., a market he knows well,” remarked Mineo Bito, president and CEO of Bito Financial Service Co., who often attends Berkshire’s shareholder meetings in Omaha, Nebraska.
—With contributions from Yasutaka Tamura.
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