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Buffett Eyes Japan: Yen Bond Move Hints at Insurance and Shipping Stock Targets

AInvestThursday, Oct 3, 2024 3:00 am ET
1min read

Berkshire Hathaway's return to the yen bond market has sparked speculation that Warren Buffett may be eyeing increased investments in Japanese stocks, particularly in value-driven sectors. This week, the company initiated a yen-denominated bond issuance, suggesting a potential expansion of its Japanese investment portfolio, a strategy Buffett alluded to in his February annual letter where he mentioned financing Japanese stock purchases primarily through yen bonds.

According to Eiji Kinouchi, Chief Technical Analyst at Daiwa Securities, insurance and shipping companies could be Buffett's next targets. His recent report highlighted that, although Japanese trading companies’ stocks rose following the bond issuance news, they didn't significantly outperform the market. Instead, since August, shipping and insurance stocks have been the top gainers in the Tokyo Stock Exchange, aligning with Buffett's value investment approach.

Should Buffett choose to increase his investments, it could potentially invigorate the Japanese stock market, as seen earlier this year when his backing of Japan's five major trading houses pushed the Nikkei 225 to record highs.

Following a major sell-off in August, the valuations of Japanese banks and insurance companies have dipped. The Topix Insurance Index and Banking Index's forward price-to-earnings ratios are currently at 9 and 10.1, respectively, down from their July figures of 12.1 and 12.4.

Senior strategist Takashi Ito from Nomura believes it's plausible for Buffett to invest in financial stocks, asserting, “The fundamentals in Japan's financial sector are robust, meeting Buffett's criteria.” Nomura strategists, including Tomochika Kitaoka, have identified financial institutions like Mitsubishi UFJ Financial Group, Sumitomo Mitsui Trust Holdings, and Sompo Holdings as potential fits for Berkshire’s investment portfolio.

Despite this, some Buffett watchers speculate that his recent sale of U.S. bank stocks suggests his focus may remain on Japanese trading houses. Mineo Bito, President and CEO of Bito Financial Services, expressed skepticism, noting, “I don’t think he would buy Japanese bank stocks while selling U.S. bank shares; he has deep insights into the American market.”

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