Warren Buffett’s $8 Billion Japan Profit Is A Game-Changer

Warren Buffett’s $8 billion profit from bets on five Japanese trading houses is generating something of a virtuous cycle across Asia.

Granted, the Berkshire Hathaway billionaire’s windfall from stakes in Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo is an “on paper” one. Yet these unrealized wins have chieftains in India perking up in ways that could help Asia’s third-biggest economy raise its corporate game. And, indirectly, prod South Korea to step up efforts to internationalize corporate practices.

The India plot thickened on Friday when Buffett gave Prime Minister Narendra Modi’s economy a timely shoutout. The Indian market, Buffett said, has “unexplored” opportunities. He added that “I’m sure there are loads of opportunities in countries like India.”

Not the most expansive take. But you could easily replace the word “India” today with “Japan” in 2020, when Buffett surprised the investment world by disclosing sizable stakes in Japanese companies.

It’s hard to exaggerate the broader impact of the globe’s most famous value investor betting on a deflation-plagued, aging nation. And on five “old economy” conglomerates that time had largely forgotten. But talk about a prescient wager, one that presaged the Nikkei’s 225 Stock Average topping its previous 1989 highs earlier this year.

Buffett didn’t precipitate the rally. That credit goes to the Bank of Japan’s negative-rate policies, an ultra-weak yen and moves by lawmakers to strengthen corporate governance. Yet the “Buffett effect” will have India-curious investments mulling their own opportunities in Modi’s economy. And Modi, in turn, looking at the Japan playbook for corporate upgrades.

South Korea, in the meantime, has been racing to emulate the FOMO dynamic lifting Japan’s stock market over the last 18 months. This fear-of-missing-out energy lit a fire under President Yoon Suk Yeol’s administration.

In February, Yoon’s Financial Services Commission rolled out a “Corporate Value-Up Program” to prod Korea Inc. to increase efficiency, diversify boardrooms and boost shareholder returns.

Though Yoon didn’t name-check Tokyo, envy over Japan’s return to “It” market status was written between the lines in large, bold font. The announcement came, after all, at the same moment the Nikkei surge was putting Japan’s economy in global headlines for all the right reasons.

Also in the subtext was news in February that Buffett-owned IMC Group is building a semiconductor materials facility in Daegu, South Korea. Though worth only $98 million, it’s a solid start as Asia’s No. 4 economy seeks to lure more investments from Buffett and his ilk.

To be sure, one shouldn’t overstate the influence of one man as Asia works to reduce bureaucracy, strengthen capital markets, increase innovation and internationalize corporate practices. But nor should we downplay the power of the “Good Housekeeping” seal that investments like Buffett’s can impart.

Yoon is but the latest leader since the late 1990s promising to end the dreaded “Korea discount,” which depresses the valuation of Kospi Index companies relative to regional peers. And two years into his five-year term, investors have every reason to worry that Yoon won’t fix the problem either. His value-up scheme, unfortunately, is light on specifics or a clear timeline.

Reform is needed if South Korea is going to pull more Buffett-like investment whales its way. Ditto for India, which is finding it harder to lure global capital than a year ago. Doing so was almost too easy in 2023, a year in which the Nifty 50 surged 20% and the S&P BSE Sensex Index rose 19%.

Credit where it’s due: some of those gains reflect Modi’s pro-business policies and India growing a China-beating 7.5% last year. Yet lots of those capital inflows came from international funds fleeing a cratering Chinese market. Between a 2021 peak and January 2024, plunging mainland shares lost $7 trillion of market value.

Japan, India and Taiwan were major beneficiaries of China’s epic selloff. Now, as Shanghai and Shenzhen companies return to favor, India, like Japan and Taiwan, is having to work harder to win its share of global investments. All the more reason for Modi to accelerate efforts to open the economy, curb red tape, reduce inequality and take Buffett up on his India optimism.

That goes, too, for Japan. Just about everything Tokyo policymakers expected of 2024 is going awry. China’s economy isn’t bouncing back as hoped. The Federal Reserve won’t be slashing rates as expected. Global inflation isn’t as transitory as officials thought. Japan’s weak recovery is confounding the optimistic takes of just a few months ago.

Nor is the BOJ accelerating moves to normalize rates, as was universally predicted. And Prime Minister Fumio Kishida’s approval rating is in the mid-20s, at best, as inflation rises faster than wages. What’s going right, though, is a Nikkei market up 14.5% so far this year.

In recent interactions with shareholders, Buffett made it clear Berkshire Hathaway is open to additional Japan bets, to grow his $8 billion profit. Don’t underestimate how the mere specter of such investors is catalyzing change in boardrooms in Japan and beyond — and in game-changing ways.