American investment giant Berkshire Hathaway Inc. $BRK-A, led by Warren Buffett, has announced plans to gradually increase its stake in five of Japan’s largest trading houses. This announcement, detailed in the company's annual shareholder letter, has caught the attention of analysts and investors alike. The move is expected to provide long-term support to the stocks of these key Japanese corporations, following a period of market challenges.

Companies in Berkshire Hathaway's Spotlight

Berkshire Hathaway first acquired stakes in Japan’s leading trading firms back in 2020. The company initially promised to keep its holdings below 10% for each firm, but this limit may now be raised. The five companies in question are: Mitsubishi Corporation $MSBHF, Mitsui & Co. $MITSY, Itochu Corporation $ITOCY, Sumitomo Corporation $SSUMY, Marubeni Corporation $MARUY. These firms, known as Japan’s "sogo shosha" (general trading companies), are massive conglomerates managing diverse businesses including energy, metals, food, and technology.

Why Buffett Is Betting on Japan

Berkshire Hathaway’s move to deepen its investment in Japanese trading companies can be attributed to several key factors:

• Resilience and stability. These companies are integral to global supply chains and operate across numerous industries, making them less vulnerable to sector-specific downturns.

• Portfolio diversification. Increasing exposure to Japanese markets reduces Berkshire’s reliance on U.S. equities and offers access to Asia’s economic growth.

• Attractive valuations. Japan’s stock market has faced challenges recently, presenting opportunities for long-term investors to buy stable assets at appealing prices.

Current Challenges in Japan's Stock Market

The Japanese stock market has been underperforming in recent months. The TOPIX Index is down around 1.7% year-to-date, while the MSCI Asia Pacific Index has gained approximately 4.6% over the same period. A key factor weighing on Japanese equities is the strengthening yen, which has created headwinds for exporters. Additionally, the country's economic recovery has been slower compared to some of its global counterparts.

Berkshire Hathaway’s decision to raise its stakes in Japan’s largest trading houses highlights the company’s confidence in the resilience and sustainability of their business models. Despite short-term challenges in Japan’s stock market, this move underscores the strength of the Japanese economy as a strategic investment destination. For Berkshire, it’s not just about short-term gains - it’s a bet on stable and significant returns over the long haul.