Lead-Lag Live

Global Rotation Underway: Hervé Van Caloen on Japan’s Revival, Semiconductors, and Defense Spending

• Michael A. Gayed, CFA

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In this episode of Lead-Lag Live, I sit down with Hervé Van Caloen**, Owner and Portfolio Manager at **Mercator Investment Management, to break down why global markets outside the United States are entering a powerful new phase of leadership.

From Japan’s aggressive stimulus and corporate reform push to structural dominance in semiconductors, defense technology, space, and energy infrastructure, Van Caloen explains how capital is rotating toward regions and industries aligned with long-term geopolitical and economic realities.

In this episode:
– Why Japan’s stock market continues to hit record highs
– How semiconductors have become global oligopolies with pricing power
– Why defense and space spending are entering a multi-year upcycle
– How infrastructure and electricity demand are driven by AI growth
– Why global diversification may matter more as U.S. valuations stretch

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.



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SPEAKER_01:

Well, Mercadu Libre is my um biggest holding in in all my portfolios. Uh it's um, you know, people call it uh the Amazon of uh Latin America. I'm not talking about uh the forest, I'm talking about uh Amazon, the company, the e-commerce dominant company. Whereas Amazon is dominant in many countries. In Latin America, Mercado Libre is bigger than Amazon. And they're very big. It's an Argentinian company originally. They are big in Argentina, in Brazil, in Mexico. They used to be very big in Venezuela many years ago, and now with the changes are happening in Venezuela, they have an opportunity to rebuild their presence in Venezuela, which was a very big market to them.

SPEAKER_00:

I'm your host, Melanie Schaefer. Welcome to Lead Leg Live. Now, Japan's market is making headlines again. The Nikkei just hit record highs above 54,000 as investors priced in aggressive stimulus under Prime Minister Takahaji. The yen is weak, bond yields are moving, and export heavy sectors are seeing big inflows. Globally, capital is chasing similar structural themes in semiconductors, AIs, waste, and defense. My guest today is Herve Van Kalun, owner and portfolio manager at Mercator Investment Management. Hervey, it's great to have you.

SPEAKER_01:

Thank you, Melly. Nice to be here.

SPEAKER_00:

So Japan's uptrend has been going for years, but Takahi seems to be taking things a bit further. What stands out to you in Japan's market uh right now?

SPEAKER_01:

Yeah, it really started in 2012 with uh Prime Minister Abe. And at the time it was called the Abinomics when uh Prime Minister Abe became very aggressive um in his uh monetary policy and fiscal policies and and uh corporate governance, he was changing uh the whole corporate corporate governance in Japan. Now, uh Prime Minister Takaichi, uh it was um Prime Minister Abe's protege. So she is taking all these reforms and this very aggressive progress policies to the to the next level at this point.

SPEAKER_00:

So uh looking ahead of semiconductors, the TSMC, ASML, and even advantage, they keep dominating. What makes them so hard to compete with? And why do you think that they should matter uh to investors today?

SPEAKER_01:

So the semiconductor industry is really made out of a number of uh companies that make the semiconductors, like uh the one semiconductor, CFMC, or companies that make the um uh equipment, and and all these equipments are very sophisticated equipment. So we are in an industry that's dominated by a number of either monopolies or duopolies of oligopolies, because they're very sophisticated products. Think about the Nelbo Dutch company. They make uh the machines that make the lithography for uh semiconductors. Now that's a highly, highly um technologic um company. They they they make these machines that are worth sometimes$400 million. And in order to put this machine together, they're huge machines, uh, they need like a thousand trappers who each have highly specialized knowledge to put this very sophisticated machine together. So we're talking about um buopolies, or monopolies, and that makes them really good businesses. Now, the semiconductor cycle is very volatile, but the business within the cycle are really very sophisticated oligopolies, which makes it very profitable businesses.

SPEAKER_00:

Yeah, so in a hurry, Japan is really trying to rebuild its semiconductor industry. How do rapid SMTSMC's investments there fit into the bigger picture?

SPEAKER_01:

Yeah, so so you know, Prime Minister Takaichi and the previous prime ministers have decided to uh rebuild their semiconductor industry. Remember back in the 80s, more than 50% of the industry were in Japan. They were really the dominant force, and then they've let it go towards Korea, to Taiwan. And so late uh in last few years back in 2022, uh the Japanese uh government decided to invest in a new company that should be able to compete with CSMC. Uh, this is a company called Rapidus, and the government invested heavily into Rapidus, but in the private sectors, companies like Honda, Toyota, Sony, and many other companies became shareholders of Rapido. And the goal is to make Rapidus a direct competitor in the high-end semiconductor manufacturing uh within a few years. And so they're investing very heavily to catch up with uh Taiwan or six ones.

SPEAKER_00:

Yeah, no, right. Nash, I want to shift to Latin America. We're seeing pro business for places like Argentina and Chile. How does that change your thinking on companies like uh Mercado Libra?

SPEAKER_01:

Well, Mercado Libre is uh my um biggest holding in in all my portfolios. Uh it's uh, you know, people call it uh the Amazon of uh Latin America. I'm not talking about uh the forest, I'm talking about uh Amazon, the REST company, the e-commerce dominant company. Well, whereas Amazon is dominant in many countries, uh in Latin America, American Libre is bigger than Amazon. And they're very big. It's an Argentinian company originally. Uh, they are big in Argentina, in Brazil, in Mexico. They used to be very big in Venezuela many years ago, and now with the changes uh that are happening in Venezuela, they have an opportunity to rebuild their presence in Venezuela, which was a very big market to them. So it's a growing company. E-commerce penetration in Latin America is still far behind penetration rules in Europe or in the United States. So there's still a lot of that going on. And while they dominate the e-commerce business, they use their knowledge to become the largest uh fintech company in Latin America. They are becoming the largest bank online in Latin America using their knowledge of uh consumers and uh companies in Latin America.

SPEAKER_00:

Yeah, so I mean we've talked about Asia and South America. I want to look up into the sky for a minute and talk about the space side. Rocket Lab is emerging behind SpaceX. Where do you see opportunity in the commercial space sector going forward?

SPEAKER_01:

It is really exploding. The whole uh space exploration, this whole space industry is really exploding worldwide. The Chinese are trying to catch up with America, and but also now even Germany is investing in small startups so that they they can start um you know catch up with the uh SpaceX. Now, the the um uh Rocket Lab is only second to SpaceX. It's a company that was founded by Mr. Beck in uh New Zealand many years ago, literally in his garage, and he has an amazing track record, and he's now uh the second largest uh rocket uh ship producer in the world. And what makes him so interesting is that last year, for example, I think they had 21 launches, and they had a 100% success rate, which is amazing in that industry. As you know, in SpaceX, uh, we see you know some of those rockets exploding once in a while. He has a perfect track record. He uh really shows it. So now he's moving to the next step, whereas he's uh launching uh small satellites and going to very low orbit um um now in 2026 he's gonna launch a bigger rocket and he's gonna start competing more because that's where he works for the last three taxes.

SPEAKER_00:

It's interesting. And as you know, there's a lot going on politically in the world right now, and the defense spending is definitely growing, and especially in Europe and Japan. How do companies like, for example, Kraken Robotics fit into that sort of trend?

SPEAKER_01:

You know, it's very interesting. I mean, NATO is finally waking up. Um, you know, the Trump administration hasn't made it very clear that uh Europe and that other NATO countries have to step up. And indeed, Germany, with this new government, uh, has decided to spend a ton of money. I mean, the defense budget in Germany was always you know way below the 2% um commitment that our NATO countries had made. Uh transfer miracle in Germany has changed that. And next year they're gonna spend Germany's gonna spend more than 135 billion euros on defense, which turns the defense budget from 1.5% to 2.8%, and it's gonna go after that uh 30% of GDP. So we the Europeans are getting very serious. I mean, with the invasion of Ukraine, with the push uh from the Trump administration, the European safety uh government message, and they're very serious about investing in uh in defense and most importantly in the technology. So the company you mentioned, Kraken Robotics, is actually a convenient company that has bought uh, among other things, uh, German technology. And they are leaders in the um uh underwater uh drone uh business. So they they make sensors for underwater drones, uh, but they also bought this uh battery technology from this German company, which is a partner of the Canadian company. Uh batteries that are really unique in the sense that they can last for months and months and can go underwater and very deep underwater, much deeper than any other batteries. They can go all the way down to 6,000 meters underwater and resist the pressure. So they had something unique at the time when drones, of course, is something that everybody realized um is very important in warfare and the water drones uh are very important in the future of the uh Germany OG but it's all around the roads.

SPEAKER_00:

Yeah, and I mean you you've touched on that, but I mean, AI and infrastructure investments are getting more attention. They're heavily related as well uh to defense. Which companies are with companies like Schneider and Hitachi, etc., how do you pick the ones specifically that benefit the most from these big sort of structural shifts?

SPEAKER_01:

Yeah, as you know, I mean, you know, AI is using up a lot of electricity, um, and it's you know, the demand for electricity is picking up rapidly all over the world. So there are some of those big, large um companies overseas that are benefiting even uh the investments that we are making, uh upgrading the grid here in the United States, so increasing the production of electricity in the United States and all over the world. So if you look at the French company at Schneider, which has Protect Square D in the United States, which might be a brand name, but people recognize in the United States, but they're all over the world and they are very uh it's here in the United States benefiting from this demand that's gonna go on for 10 years, Greece, um, as you know, AI is using up so much technology. Kitachi, the Japanese company that we mentioned, is another global company that is benefiting from this uh rebuilding of the electricity, the age of electricity, where we planted uh right now is gonna benefit these companies, not just for the next quarter or so, but for the next 10 years.

SPEAKER_00:

Every you have so much uh knowledge to share uh on these sort of like broad um in investment landscapes that people are looking at. For viewers who want to dive deeper into your research or Mercature's global uh approach, where's the best place for them to go and how can they connect with you?

SPEAKER_01:

So I have a website, obviously. Uh our company is called Mercator uh Investment Management. So you can go on our website at MercatorInvestments.com and um you know we can ask you questions. Uh, we're gonna, you know, publish some of the articles I've written in the past and um, you know, and some of the podcasts that uh I'll be participating in in the future. Uh but yes, please I encourage if you're interested in what's going on around the world, it's um there's a lot going on in the United States and the US market, but people are neglecting um other markets sometimes. And and we mentioned we started with the Japanese markets ever since 2012. Uh, the Japanese market's been going up and up and up, and it's hitting all-time highs all the time. Europe is waking up, and there's a lot happening, and the other advantage is that this might be a good time to diversify it. You're a little bit nervous about the valuations in the US market. Uh, the uh markets overseas have uh lack the performance here, and they definitely uh much cheaper, and so the list is maybe not as high. Uh, so please come on my website, Mercator Investments, uh Mercatorinvestments.com, and uh don't hesitate to send me questions. Um, I will be responding to all your questions.

SPEAKER_00:

Fantastic. And and you you post a lot of great stuff on uh X as well. So people should definitely go and take a look at you over there. Thanks so much for joining me, and thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Like Live.

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Michael A. Gayed, CFA

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