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A Democratic election victory in the US has fuelled fears of tighter AI regulation and slower data centre expansion, triggering a sharp sell-off in Asia’s semiconductor-heavy markets
The outcome of the US midterm elections is sending shockwaves through Asian financial markets, exposing how political developments in Washington can have far-reaching consequences for industries and investors thousands of kilometres away.
South Korea’s benchmark KOSPI plunged more than 8 per cent on Friday, triggering a circuit breaker that temporarily halted trading. Japan’s Nikkei 225 tumbled 6 per cent, while Taiwan’s benchmark index fell more than 8 per cent as investors rushed to exit technology and semiconductor stocks.
The sell-off followed a sharp decline on Wall Street, where the Nasdaq Composite sank 5.5 per cent overnight and the Philadelphia Semiconductor Index plunged 12.2 per cent. More than $3 trillion was wiped off the market value of S&P 500 companies.
At the centre of the turmoil is growing investor anxiety over the future of the artificial intelligence industry following the Democratic Party’s strong performance in the US midterm elections.
Investors fear that a stronger Democratic presence in Congress could bring greater regulatory scrutiny of technology companies, potentially slowing the pace of AI expansion and data centre investments.
The political uncertainty has arrived at a time when the AI trade was already facing questions over whether the massive investments in computing infrastructure, chips and data centres would generate sufficient returns.
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The connection between Washington’s political landscape and Asian stock markets runs through the global technology supply chain.
American technology companies are among the world’s biggest buyers of advanced semiconductors and computing equipment. Their investments in AI infrastructure have supported demand for chips manufactured by companies in South Korea, Taiwan and Japan.
Any prospect of slower AI infrastructure spending in the US can therefore affect revenue expectations for Asian suppliers.
South Korea’s Samsung Electronics and SK Hynix are major players in the global memory chip industry. Taiwan’s TSMC is the world’s leading contract chipmaker, while Japan’s Kioxia is a major supplier of NAND flash memory.
Their shares came under intense pressure on Friday.
Samsung Electronics fell nearly 10 per cent, while SK Hynix declined 11.7 per cent. Taiwan Semiconductor Manufacturing Company (TSMC) dropped 8.5 per cent, and Japan’s Kioxia plunged 14 per cent.
AI spending faces a political and financial test
The Democratic election performance has added a political dimension to concerns that were already building around the AI industry.
Investors are increasingly questioning whether technology companies can generate adequate returns from the enormous sums being committed to artificial intelligence.
The construction of data centres requires substantial investments in land, electricity, cooling systems, networking equipment and advanced processors. The business model also depends on sustained demand for computing capacity and the ability of companies to monetise AI products.
There are growing concerns that increased local opposition to data centre construction and tighter regulatory oversight could complicate the industry’s expansion.
The pressure is also extending to companies that provide computing infrastructure to AI developers.
US neocloud company CoreWeave, which has become a closely watched indicator of investor appetite for AI infrastructure financing, fell 10 per cent. Its five-year credit default swap spreads, which measure the market’s assessment of default risk, widened to a record level.
SoftBank Group, another prominent investor in the AI ecosystem, dropped 11 per cent. The cost of insuring against a potential default on its debt climbed to its highest level in four years.
Investors seek safety as global sell-off spreads
The turbulence has also triggered a shift towards traditional safe-haven assets.
US Treasury bonds were poised to gain in Asian trading, while the US dollar weakened against currencies such as the Japanese yen and Swiss franc.
The yield on the benchmark 10-year US Treasury note stood at 4.838 per cent, hovering near its lowest level since September 9.
European stock futures fell around 1 per cent, suggesting that the sell-off could spread beyond Asia.
The Nasdaq has now declined around 12 per cent from its record closing high a month ago.
The latest developments underline the increasingly interconnected nature of global financial markets. A change in the political balance in Washington can influence expectations for technology regulation and corporate investment, which in turn affects semiconductor demand, Asian exports and investor portfolios.
(With inputs from agencies.)
