Asian markets follow US rout as AI investment jitters spread in wake of Democrat blue wave

Stock markets in Asia plunged Friday, following a tech-led sell-off in the US on anticipation that newly elected Democratic officials could stymie an AI investment boom that’s driven global stocks to record highs. South Korea’s Kospi index dropped more than 8% after opening, triggering a temporary halt in trading on the exchange, while Japan’s Nikkei 225 index opened down about 6%. Taiwan’s benchmark Taiex index also declined about 8% in morning trading, before paring some of those losses. Asian tech companies, which play an integral role in the global electronics supply chain, have been buoyed by insatiable demand for components such as semiconductors needed to build massive AI data centers. US tech giants such as Meta, Amazon and Google have become known as “hyperscalers” for their heavy spending on new data centers to power AI, and a Columbia Business School study estimates that AI-related infrastructure investment was driving nearly all observed US GDP growth by the end of last year. However, backlash against the environmental and community impact of new data centers turned AI spending into a key issue in the US midterm elections. Democrats won control of the House of Representatives and the Senate, and flipped several other contested state seats. That sweeping victory has spurred concerns that Democratic representatives could now block or slow spending on new AI infrastructure, threatening a key driver of economic growth for both the US and Asia. Asia’s wild tech ride The recent volatility builds on a year of sharp swings for Asian markets, particularly the Kospi, as investors have grappled with the sustainability of the AI boom, as well as the ultimate profitability of such steep investments. Jung In Yun, founder and CEO of Fibonacci Asset Management Global, said Friday’s sell-off was likely triggered by investors reassessing expectations around AI investment and policy. However, he believes demand for computing power will continue to grow, along with the need for memory chips like the ones made by Samsung Electronics and SK Hynix, the two largest publicly-traded companies in South Korea. “South Korea’s tech-heavy market is particularly exposed to shifts in sentiment, so we may see more swings before confidence settles,” he said. Government officials in both South Korea and Japan acknowledged the recent volatility in their respective stock markets on Friday. “I am aware share prices, particularly those of AI and chip sectors, are falling sharply,” said Japanese Prime Minister Sanae Takaichi, adding that the government was closely watching market developments. “We will focus on steps to create a strong economy.” South Korea’s finance and economy minister Lee Hyoung-il also held a meeting Friday regarding the impact of the US midterm elections on the nation’s economy. According to the ministry, leaders assessed that an impact on the global markets “cannot be ruled out” and that they would proactively devise measures to prevent overreactions in the Korean stock market. Following US signals Tech stocks around the world have been sensitive to sudden shifts in sentiment this year, as both retail and institutional investors have responded to new data or developments in AI. “If we just focus on AI-related stocks in the market, then I would argue there has been too much of a hype earlier this year,” said Theodore Shou, partner at asset management firm Yiyi Capital in Hong Kong. “I think the market is just moderating itself.” As excitement around AI has grown, Shou said that Asian tech stocks have become more closely correlated with their US counterparts than ever before. A US market rout wiped out about $2.5 trillion on Thursday, led by a 5.5% slump in the tech-heavy Nasdaq, its worst day since April 2025 when President Donald Trump announced sweeping tariffs on virtually all of America’s major trade partners. However, Shou said that some market participants may be banking that a Democrat-led Congress could slow the pace of interest rate hikes, lowering the cost of borrowing, which could help boost both tech and non-tech equities. As traders await the winners of the US midterm elections to take office early next year, analysts said global markets will likely remain sensitive to changes in tech and monetary policy. “The thing that markets really don’t like is the uncertainty. And what they’re really saying is, we’re not sure what’s going to happen in January,” said Andrew Sullivan, who writes about Asian equities in his newsletter Asian Market Sense. “So, let’s just take a step back. Let’s put some money into cash that we can then use once the dust has settled, so to speak.”