(Bloomberg) — A share-price surge in Japan’s trading houses triggered by Warren Buffett’s $6 billion investment is already fading, due to a lack of fresh catalysts and a downturn in commodity markets.
Shares of two of the five “sogo shosha” — as the commodity-centric Japanese conglomerates are called — are now trading at or below levels before Buffett’s Berkshire Hathaway Inc. announced its stake purchase. The August announcement, among the largest-ever investments by Buffett in Japan, not only sparked a rally in stocks, but also boosted overall investor interest in the trading companies.
The failure of share prices to sustain the higher levels despite Buffett’s vote of confidence highlights the challenges faced by the shosha as the coronavirus pandemic erodes demand for commodities. It also speaks to the challenges for a Japanese equity market heavily weighted toward so-called value shares, with the benchmark Topix Index on track to lag the MSCI AC World ex-Japan Index for a fifth straight year in 2020.
Berkshire announced on the last day of August that it had bought stakes of about 5% in each of Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co. and Sumitomo Corp. That saw shares of all five firms jumping, with Sumitomo gaining more than 9% on the day.
As of Tuesday, Itochu and Sumitomo have given up all or most of their gains since the announcement. Only Mitsubishi remains substantially higher — with a 7.8% gain since, versus a 2.6% advance in the Topix index in that period.
“The Buffett purchase gave investors a chance to review the shosha stock prices, but since then, they’ve been sold as sentiment wasn’t as strong as hoped for,” said Yoshihiro Okumura, a general manager at Chibagin Asset Management.