"Stock God" Buffett may issue yen bonds again, becoming the first large non-financial overseas issuer to issue yen bonds in the Japanese market after the Bank of Japan raised interest rates. Some people speculate that the legendary investment tycoon may invest more in Japanese stocks. funds.
On April 9, local time, the media quoted people familiar with the matter as saying that Berkshire Hathaway plans to issue Japanese yen bonds in the global market. The company has hired a bank to arrange the issuance of Japanese yen bonds. Depending on market conditions, this transaction may Will be achieved in the near future. Buffett's move triggered market speculation that he may be considering increasing investment in Japan.
It is worth noting that the scale of net sales of Japanese stock spot and futures by foreign investors at the end of March hit a six-month high. Foreign investors sold a net 1.18 trillion yen ($7.8 billion) of stock spot and futures in the week ended March 29, the highest level since the last week of September last year, according to data from Japan Exchange Group.
As soon as the news came out that Berkshire was about to issue Japanese bonds, the stock prices of the five major Japanese trading companies favored by Buffett (Itochu Corporation, Marubeni, Mitsubishi, Mitsui and Sumitomo) rose in response, pulling up Japanese stocks. The Nikkei 225 index closed up 1.08%. 39773.13 points, rising for 2 consecutive days, with Mitsubishi Corporation and Mitsui & Co. rising by more than 3%.
The Bank of Japan announced its latest interest rate decision in March, raising the benchmark interest rate from -0.1% to 0-0.1%, marking the first interest rate increase since 2007. The eight-year era of negative interest rates came to an end. Berkshire Hathaway will also become the first large non-financial overseas bond issuer to issue yen bonds in the Japanese market after the Bank of Japan canceled its negative interest rate policy.
Media analysis pointed out that there are signs that Bank of Japan Governor Kazuo Ueda will not be eager to raise interest rates again. Against this background, the credit spread of Japanese yen bonds (that is, the additional yield relative to the risk-free benchmark) has narrowed to 2022 the lowest level since September. Investors now require credit spreads on corporate bonds of about 52 basis points, down from 67 basis points a year ago.
Buffett continues to increase investment in Japanese market
In the past two years, Buffett has been quite active in the Japanese market. Since issuing its first yen bond in 2019, Berkshire has been one of the largest overseas issuers of yen bonds, choosing yen 32 times in its past 40 bond issuances. As of September last year, Berkshire had approximately $7.6 billion in yen bonds issued.
In addition to the continuous issuance of bonds, in August 2020, Berkshire announced for the first time that it passively holds 5% of the shares of Japan's "big five trading companies", and then revealed in June last year that it had increased its shareholding ratio to more than 8.5%. In a shareholder letter released in February this year, Buffett revealed that Berkshire holds approximately 9% of the shares of these five companies.
Buffett stated in his shareholder letter that diversified businesses, high dividends, high free cash flow, and prudent issuance of new shares are important reasons why he favors the five major trading companies:
Five companies, Itochu Corporation, Marubeni, Mitsubishi, Mitsui and Sumitomo, all follow shareholder-friendly strategies and have reduced the number of outstanding shares at attractive prices since we began acquiring Japanese stocks.
All five companies pay only about 1/3 of their earnings as dividends, retaining huge sums of money to both build their many businesses and, to a lesser extent, repurchase stock. Like Berkshire, these five companies are reluctant to issue stock.
Additionally, it's impossible to predict the market prices of major currencies, so Berkshire funded much of its position in Japan with 1.3 trillion yen in bond proceeds.
Regarding how long it will be held, Buffett stated in the shareholder letter that he will continue to hold the shares of the five major trading companies for a long time. He previously revealed that Berkshire plans to hold these investments for 10 to 20 years.
The five major trading companies have been one of Buffett's most successful investments in recent years. Since Berkshire acquired these five stocks in 2020, the average increase has more than doubled. The Japanese stock market has been on a roll, with the benchmark index Nikkei 225 surpassing the previous historical value of 38,957.44 points in 1989, hitting a record high.
Berkshire's current investment costs in these five companies total 1.6 trillion yen, and the year-end market value of the five companies is 2.9 trillion yen. With the yen weakening in recent years, Berkshire's year-end unrealized U.S. dollar gains were 61%, or $8 billion.