In the wake of a significant victory for the Democrats in the U.S. midterm elections, global markets are on edge with concerns heightening over potential tighter regulations on the AI sector. This unease triggered a sell-off that reverberated through Asian markets, pushing the Taiwanese stock exchange into a bear market and deepening losses in Japan and South Korea. Attempts to stabilize markets by officials, alongside a rebound in U.S. futures, provided some relief to the plunging numbers as trading progressed.
Tech Stocks Plunge Across Asian Markets
The MSCI Asia Pacific Index fell by 3.8%, while Japan’s Nikkei 225 Index nosedived 5.8%, marking its worst single-day drop since April 2025. South Korea’s Kospi Index encountered an 8.8% intra-day decline, activating an automatic trading halt. Notably, tech giants Samsung and SK Hynix saw over a 5% dip in share value. Meanwhile, Taiwan’s benchmark index slumped 4.5%, officially entering a bear market.
At the core of this substantial sell-off is the concern that the Democrats’ congressional victory could lead to stricter regulations on U.S. data centers, potentially stalling the growth of AI infrastructure. The Philadelphia Semiconductor Index plummeted approximately 16% this week, facing its worst weekly performance since April 2025.
Former U.S. President Donald Trump attributed the intensifying sell-off in tech and AI-related stocks to the losses Americans faced in their 401(k) retirement plans, placing the blame squarely on the Democrats. The Republican Party experienced widespread defeats in Tuesday’s midterm elections.
South Korea Moves to Restrict Forced Sales
In a bid to mitigate forced sales, South Korea suspended the rule requiring collateral equal to at least 140% of the credit used in margin trading. The intent was to limit compulsory sales through brokerage firms. Taiwan’s financial regulator was also expected to announce measures aimed at stabilizing its market.
Supportive news and the recovery in U.S. equity futures helped Asian markets retrace some losses, with Nasdaq 100 futures climbing by 0.8%.
Amid the risk aversion, bond markets saw a surge in demand. China’s 10-year government bond yield hit its lowest historical point during the day, influenced by abundant liquidity and heightened safe-haven demand. The recent change in policy rates was viewed as a de facto monetary easing, contributing to this movement.
U.S. Treasury bonds maintained their gains from Thursday, while Japanese government bonds also rose on Friday. The dollar strengthened against all other G10 currencies.
Brent Crude Climbs, Yet Faces Historical Weekly Loss
Brent crude oil rose by 1.4% to $99.70 a barrel, following a 3.9% surge in the previous session. Nevertheless, Brent is poised for its largest weekly decline since April 2020.
The oil pricing this week was significantly influenced by the possibility of an end to the protracted Middle Eastern conflict. Initially, investors speculated that the Democrats’ victory might expedite a resolution to the Iranian conflict. However, concerns over data center regulation subsequently triggered extensive sell-offs in tech stocks.
Canadian Investment Surge Planned Through Increased Borrowing
Canadian Prime Minister Mark Carney reiterated his commitment to accelerating public investment through leveraging the national balance sheet. The strategy involves increased borrowing, utilizing billions from rising tax revenues to expand the economy’s production capacity.
The election’s impact on markets shifted focus from anticipation of conflict resolution to fears over AI investment slowdowns. A near 16% weekly drop in semiconductor stocks starkly highlighted this transformation. While support measures in Asia tempered daily losses, Brent’s trajectory towards a historic weekly fall mirrored aggressive shifts within oil markets.
