Warren Buffett. Picture / Reuters
NEW YORK - Warren Buffett, sometimes thought of as America's greatest capitalist, says he is buying stocks of companies that do business elsewhere.
In his annual letter to Berkshire Hathaway shareholders, Buffett said yesterday he had reduced the company's stake in foreign currency contracts, a bet the US dollar will
fall, to US$13.8 billion ($21.01 billion) in nine currencies from US$21.4 billion in 12 currencies a year earlier.
He said, however, that Berkshire partially offset that by buying stocks in companies that earn a "large part" of their profits outside the United States, and denominated in currencies other than dollars.
Buffett did not identify the companies, but the investments might be considerable. In his letter, Buffett did not itemise US$7.15 billion of the US$46.72 billion of stock investments that Berkshire had at year end.
Buffett began trading in currencies in March 2002, amid concern that US policies were causing trade and budget deficits to soar, and would cause non-US investors to pull money out of the country. He said his view had not changed.
Last year, the US trade deficit rose 17.5 per cent to a record $US725.8 billion. Buffett said it might rise more, and that as investments shifted, non-US investors "will begin earning more on their holdings than we do on ours".
The currency bet cost Berkshire US$955 million last year, as the US Dollar Index, which measures the greenback's value against six currencies, rose 12.6 per cent.
Since March 2002, however, the index had fallen 24.4 per cent, and Berkshire's currency bet was $US2 billion in the black, Buffett said.
Now, though, he has returned to a more traditional strength: evaluating companies.
"As US [interest] rates have risen relative to those of the rest of the world, holding most foreign currencies now involves a significant negative carry," Buffett wrote, referring to financing costs.
"In contrast, the ownership of foreign equities is likely, over time, to create a positive carry - perhaps a substantial one."
The best-known non-US investment at Berkshire may be Asian oil producer PetroChina. Berkshire owns about $US1.92 billion of the company's shares, nearly four times what it paid for them.
Berkshire, however, also owns large stakes in US companies with large non-US sales, including Anheuser-Busch, Coca-Cola, Procter & Gamble and Wal-Mart Stores.
- REUTERS
