Japan stocks mostly soar on US midterms but AI-related ones extend tumble

On Thursday, Japanese stocks experienced a significant surge, driven by positive outcomes from the US midterm elections and a decline in crude oil prices. President Donald Trump's weakened position and the possibility of an end to the Iran war have created optimism among investors. However, the rally was not evenly distributed across all sectors, as AI and semiconductor shares continued their downward trend.

The broader Topix index rose by 1.3% by 0131 GMT, peaking at 2.4% earlier in the day. The tech-heavy Nikkei Index, on the other hand, fell by 0.5%, primarily affected by chip equipment companies Advantest and Tokyo Electron, which saw declines of 10.3% and 8.6%, respectively.

Wataru Akiyama, an equities strategist at Nomura Securities, explained that funds that previously invested in AI and semiconductors have shifted their focus to other sectors. He noted a growing belief that the Democrats' gains will lead to delays in data-center plans, which could impact the current earnings growth trajectory. Despite this, Akiyama emphasized that the strategic competition between the US and China is likely to prevent a reversal in the pace of data-center construction.

The impact of the technology sector on the overall market was evident, with 168 out of the 225 components in the Nikkei Index showing gains on Thursday, compared to 56 declines and one flat stock. The real estate, retail, and pharmaceutical sectors led the rally, with the real estate industry up by 6.5%, retail by 5.4%, and pharma by 5.3%.

Notable performers included Uniqlo operator Fast Retailing, which surged 7.9%, as well as Toyota, which climbed 5.3% ahead of its earnings report scheduled for afternoon trading. Sony and Nintendo also reported gains, with the latter up by 4.6%. Shipping, however, faced the steepest decline, driven by predictions of lower freight rates if the Middle East conflict eases.