Berkshire bets on Japanese trading companies

• Berkshire Hathaway invested in 5 Japanese trading companies

• 4 out of 5 stocks traded below book values prior to announcement

• Warren Buffett has been reluctant to invest lately

• Stake in Barrick Gold (GOLD.US) may be a bet against USD

• Berkshire Hathaway (BRKB.US) climbs and looks towards resistance at $223

Berkshire Hathaway (BRKB.US), a behemoth led by legendary investor Warren Buffet, announced on Sunday that it has acquired stakes in 5 major Japanese trading companies, the so-called Soga Shosha. In each case acquired stakes exceed 5% of the company's shares and a total value of 5 investments combined sit at around $6.7 billion (based on today's prices). 

What is Soga Shosha?

Berkshire invested in Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo. Those companies are known as "Soga Shosha" in Japan. The term translates to "general trading company" and is a good description of what those companies are - they trade in all sorts of commodities and resources and deal in most industries, including technology and manufacturing. Thanks to this, Soga Shosha play a key role in the Japanese economy but they also have extensive multinational partnerships. All of these combined make Soga Shosha quite resilient companies with secure business outlook.

Buffett's way - cheap and stable

Investment in the Japanese trading companies seem to fit into Buffett's strategy. Warren Buffett prefers to take stakes in well-established companies that have stable business. Moreover, 4 out of 5 involved companies were trading below their book values prior to Berkshire's announcement, which is also one of features that Buffett considers attractive. Berkshire made those investments through regular stock exchange purchases over the past 12 months and intends to hold shares for a long term. Buffett said that his company may decide to increase stake in any of those companies but will aim not to exceed 10%.

Market reaction

Share price of all 5 Japanese companies increased significantly during today's session in Tokyo, what is a common theme for companies that made their way into Buffett's portfolio. Marubeni was a leader with 12% single-day jump while Itochu was a laggard as it gained only 5.4% (Itochu was also the only company with Price-to-Book ratio of above 1). Berkshire is also trading higher today but magnitude is much smaller (+0.4%)

However, probably the most interesting part of this story is that those investments occured. Berkshire Hathaway has an enormous amount of cash at hand as Warren Buffett felt uncomfortable with current stock market valuations. The fact that he decided to invest in Japan may hint that he still sees US equities unattractive. However, Buffett made one investment in US stock recently - Barrick Gold (GOLD.US), a gold mining company. Taking a stake in Barrick could hint that Buffett expects the US dollar to underperform and gold prices either rising further or holding firm at current high levels.

Berkshire Hathaway (BRKB.US) is posting a small gain today after disclosing big investments into Japanese trading companies. The near-term resistance to watch can be found at $223 and is marked with price reaction from late-2019 and early-2020. When it comes to support levels, traders should focus on 78.6%, 61.8% and 50% retracements of the February-March drop. Source: xStation5