Seoul, Tokyo lead Asian market bloodbath as AI backlash and US political uncertainty rattle investors

Asian technology firms experienced a significant market downturn on November 6 as investors reacted to the collapse of Wall Street, propelled by concerns that Democrats would impose stricter regulations on the AI industry following their decisive victory in the US midterm elections. Trading boards worldwide displayed a predominantly red trend, with Seoul and Tokyo facing the brunt of the selling pressure.

The recent "blue wave" of Democratic victories brought hope of curbing President Donald Trump's aggressive stance against Iran, but fears arose over the potential impact on AI development. Data centers encountered widespread opposition from US voters, and several midterm winners pledged to curb such projects. Analysts noted that investors were unsettled by the substantial investments made in the AI sector and their uncertain returns, while rising borrowing costs further heightened financial concerns.

Michael Hewson of MCH Market Insights attributed the market sell-off to fears of increased opposition to AI buildout plans, particularly in Texas, where politicians might target Elon Musk's Tesla and SpaceX due to his pro-Trump views. Major indices, including the Nasdaq, S&P 500, and Dow, suffered substantial losses, with the Nasdaq plummeting 5.5%, the S&P 500 falling over four percent, and the Dow declining more than three percent.

The Philadelphia Semiconductor Index dropped approximately 16% this week, signaling its worst performance since April 2021. The Seoul market plummeted nearly nine percent, with key players like SK hynix and Samsung facing declines of 10% and 8%, respectively. The Kospi index more than doubled between December and June but has since lost around 50% of its value.

Tokyo's Nikkei index dropped seven percent, while Taiwan's Taiex saw an eight percent decline due to TSMC's seven percent drop. Hong Kong, Shanghai, Sydney, and Singapore also experienced declines, with Wellington and Manila joining the red list. Market observers warned of a potential "momentum unwind" as Democrats took control of the frontier and curbed data center construction.

The situation was further aggravated by a rise in oil prices, which extended Thursday's gains after initially falling due to hopes of ending the Iran conflict. Traders closely monitored developments in the crisis following indications of progress between US and Iranian leaders. Additionally, US employment data was expected later in the day, following positive readings earlier in the week.