After a day of panic, KOSPI narrowly holds above 5,000 amid AI sell-off

Japanese and South Korean stock markets experienced sharp declines on Friday as concerns over potential regulatory changes stemming from the US midterm elections impacted global tech shares. The Nikkei 225 index in Tokyo dropped 5.1% to 56,930 points in early trading, while the Kospi index in Seoul fell 8.5% to 4,923, triggering a 20-minute trading suspension to curb further losses.

Despite initial optimism following the Democratic Party's victory over President Donald Trump's Republican Party, investors grew increasingly cautious about the potential implications for artificial intelligence (AI) data center investments.

The US tech sector, particularly the Nasdaq, bore the brunt of the sell-off, with the technology-focused index plummeting 5.5% in a severe sell-off. Nvidia and other semiconductor stocks suffered significant losses, marking the Nasdaq's worst percentage decline since April 2025. Memory chipmakers, essential for powering AI tools, also faced heavy selling in South Korea.

Samsung Electronics plummeted nearly 10%, while SK Hynix saw a decline of over 11%. Japan's tech sector was not spared, with Tokyo Electron shares dropping around 9% and Kioxia shedding 13%.

The market downturn was fueled by concerns over stricter regulations on AI-related technologies following the US midterm elections. Online brokerage Monex attributed the sell-off to apprehensions about potential hurdles in data center construction projects, which are crucial for training and operating AI models. As governments and tech companies globally invest billions of dollars in data center construction, investors are wary that increased regulatory scrutiny could slow down these vital projects, impacting economic growth in the AI sector.