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Goldman Sachs Group Inc said in a report on August 5 that hedge funds focusing on the Japanese market faced their biggest single-day performance loss in Goldman Sachs' history after weak U.S. jobs data and the Bank of Japan's interest rate hike last week triggered a global stock market plunge.

As of the close of the Asian session, the performance of hedge fund managers focusing on the Japanese market has fallen by 7.6% in the past three trading days. Among them, the 3.7% drop on August 5 was the largest single-day performance drop on record for Goldman Sachs, and the past three trading days wiped out the full-year gains of these hedge funds.

According to the latest second quarter financial report, the "stock god" Buffett cashed out at the high point of the US stock market by significantly reducing his holdings of Apple and other stocks. However, even the "stock god", like other hedge funds, could not escape the losses caused by the recent plunge in Japanese stocks. However, the five major Japanese trading companies in which Buffett has invested are still confident about their profit expectations and stock price increases this year.

The "God of Stocks" once lost $13 billion in three days

On August 3, local time in the United States, the second quarter financial report released by Berkshire Hathaway, a company owned by Buffett, showed that it had reduced its holdings of Apple shares by more than half, and the book value of its Apple shares fell by 51.69%. At the same time, the company's cash reserves at the end of the second quarter were US$276.9 billion, setting a new record high. It can be seen that Buffett successfully escaped the top before this "battle royale" of the US stock market. But he escaped the US stock market, but not the Japanese stock market.

Asia-Pacific stock markets suffered a "Black Monday", with the Nikkei 225 Index recording its largest single-day drop in history. The five major Japanese trading companies held by Buffett, namely Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co., and Sumitomo Corporation, fell by 15%, 18%, 14%, 20%, and 18% respectively on the 5th, making the cumulative declines of these stocks in the past three trading days reach 26.43%, 35.2%, 24.02%, 34.14%, and 29.17%, respectively, with a total market value loss of about 117.67 trillion yen.Based on Buffett's 9% stake in the five major trading companies, the three-day decline caused the "Oracle of Omaha" Buffett to lose about 2 trillion yen (about 13.045 billion US dollars).However, as the Nikkei index rebounded by about 10% on the 6th, the share prices of the five major trading companies also generally rebounded, and Marubeni rose by about 15% within an hour after the opening.

Previously, under the long-term ultra-loose monetary policy of the Bank of Japan, Berkshire has obtained a large amount of cheap yen by issuing yen bonds since 2019, the so-called yen carry trade. As Buffett's former golden partner, Munger once detailed Buffett's trick for investing in Japanese stocks: "Japan's interest rate is 0.5% per year, with a loan period of 10 years, and Japanese overseas companies are deeply rooted. They have cheap copper mines, rubber plantations and other natural resources overseas. So Buffett borrowed money in Japan at an interest rate of 0.5% and invested in Japanese stocks. These stocks have a 5% dividend, so they can generate a lot of cash flow. There is no need to invest in the real economy, no need to think, no need for anything, just lie down and watch the Nikkei index rise." Using the 5% dividend, minus Buffett's 0.5% yen borrowing cost, that is to say, Buffett only needs to "lie flat" to earn a 4.5% dividend every year. Since issuing its first yen bond in 2019, Berkshire has become one of the largest overseas issuers of yen bonds, choosing to issue yen bonds 32 times out of the company's past 40 bond issuances. According to incomplete statistics, Berkshire has issued a total of approximately US$10.1 billion worth of yen bonds to date.

Based on this, in August 2020, Buffett invested in Japan's five largest trading companies for the first time, with a total investment of more than US$6 billion and a 5% stake in each company. In April 2023, Buffett visited Japan again after 12 years and announced that his investment in Japan's five largest trading companies had increased to 7.4%. At that time, he also revealed that the investment in Japan's five largest trading companies was Berkshire's largest investment outside the United States. In June of the same year, Berkshire announced that it had increased its stake to more than 8.5%.

In February this year, in a letter to shareholders, Buffett revealed that Berkshire already holds about 9% of the shares of the above five trading companies. He said that investing in the five major trading companies is more based on his consistent investment philosophy, that is, investing in companies with low valuations, high dividend rates and stable growth. These companies have strong cash flow and prudent financial management, and can maintain stable returns in different market environments. At the same time, the company's business is also relatively diversified, covering multiple fields from trade, manufacturing to financial services. The diversified business model can maintain profitability under different market conditions and reduce investment risks. He also said that he will continue to hold shares in the five major trading companies for a long time, and plans to hold them for 10 to 20 years.

According to the company's report data on February 24, Berkshire invested a total of 1.6 trillion yen in the five major trading companies, and the value of its holdings was 2.9 trillion yen by the end of 2023. The unrealized dollar gain at the end of the year was 61%, reaching 8 billion US dollars (about 57.5 billion yuan).

The five largest trading companies maintain their annual profit forecasts

As Japanese stock prices plummeted, Japan's five major trading companies also announced their first-quarter financial reports for the new fiscal year (April to June 2024). Their performance was mixed, but most still exceeded market expectations and maintained their annual profit expectations.

Itochu was the last of the five to report results. Its quarterly report released on the 5th showed that the trading company had a net profit of 206.6 billion yen (about 1.4 billion US dollars) in the first quarter of the new fiscal year, down 3.1% from the same period last year and below the market consensus of 219.1 billion yen. The company's net profit in the energy and chemical business fell 53%, mainly due to energy trading and gains from the reassessment of its lithium-ion battery business last year. Mitsubishi's results released last week showed that its net profit in the first quarter of the new fiscal year increased by 11.5% from the previous year to 354.3 billion yen, thanks to its sale of a stake in an Australian coking coal mine. Mitsui's net profit increased by 9.2% to 276.1 billion yen, including gains from the sale of a stake in the Peton coal-fired power plant in Indonesia. The result was lower than the market forecast of 279.7 billion yen. Sumitomo Corporation reported a net profit of 126.3 billion yen for the quarter, down 2.4% from the previous year. Sumitomo's chief financial officer, Reiji Morooka, said the company's energy division, which posted a 66% year-on-year profit increase, would "continue to lead financial performance from the latest quarter (July-September). Marubeni posted a net profit of 142.6 billion yen in the first quarter of the new fiscal year, up 0.9% from the previous year. Profits in the finance, leasing and real estate sectors rose 161% year-on-year, partly due to an accounting gain on the acquisition of Mizuho Leasing shares, as the value of the target assets exceeded the purchase price.

Although the performance is temporarily worry-free, Chiyo Takatori, a strategist at Daiwa Securities, said that the share prices of trading companies are more vulnerable to exchange rate fluctuations than the broader benchmark stock index. The yen has only recently rebounded against the dollar, which benefited these trading companies in the first quarter because they earned revenue from operations outside Japan. But since the Bank of Japan announced an interest rate hike on July 31 and rarely released an "eagle", the yen has appreciated rapidly, reaching 141.67 against the dollar on the 5th, and then quickly fell to 146.28 on the morning of the 6th.

However, the five major trading companies previously stated that the Bank of Japan's move will have limited impact on the company's future earnings because their annual profit forecasts are based on setting the exchange rate forecast for this fiscal year between 140 and 145.Chiyo Takatori said that the yen-dollar exchange rate is "approaching the expected level of the trading companies, which will make it increasingly difficult for the five major trading companies to exceed expectations in the future." In the latest quarterly reports, the five major trading companies also mentioned the uncertainty of the business environment, including exchange rates and commodity prices and the impact of the US election. Speaking of the recent stock price plunge, Tsuyoshi Hachimura, chief financial officer of Itochu, said, "Part of the reason may be the decline in the rapid rise in the past six months." But he stressed that the company can still achieve stock price increases through growth and shareholder commitments.