Buffett Strikes Gold as Japan Trading Houses See Record Profits

(Bloomberg) -- Warren Buffett's surprise bet on Japan's trading houses is paying off as the companies expect a record-breaking rebound in profits.

The trading companies, known as “sogo shosha” in Japan, boosted their net income outlook after the rebound in prices of everything from crude oil to iron ore. Buffett shocked the world in 2020 when Berkshire Hathaway Inc. announced that it bought stakes in five of Japan's biggest trading companies, which at the time were grappling with declining profits as the Covid-19 pandemic reduced demand for fuel and raw materials.

The firms have been among the biggest winners in the red-hot rally in commodities. Supply constraints and geopolitical tensions, coupled with a rebound in demand, has resulted in an eye-watering price surge in energy, metals and crops.

Shares of Marubeni Corp. surged to the highest ever on Thursday after the firm raised its full-year forecast and announced a buyback plan. Its peers Mitsubishi Corp., Itochu Corp. and Mitsui & Co. also boosted their forecasts, while Sumitomo Corp. is scheduled to release results on Friday.

“These are pretty outrageous figures,” said Masumi Kakinoki, chief executive officer at Marubeni. “We are calmly assessing. The outlook could be uncertain. All the other companies also don't want to depend too much on commodities.”

The firms are Japan's top investors in overseas energy and metals assets, and have developed sophisticated trading desks to profit from regional price arbitrage.

Buffett, 91, is the only person ranked among the world's 10 richest whose net worth has grown year-to-date. Value stocks, the bedrock of Buffett's investing philosophy and focus of his Berkshire Hathaway, have outperformed tech firms and the S&P 500 Index since the start of the year.

To be sure, there are no guarantees that these trading companies will continue to book superb earnings on back of the most recent global trend. Current prices and strong business activity doesn't reflect expected long-term trends, Marubeni's Kakinoki warned at the earnings briefing.