Asian markets, particularly those focused on technology, experienced significant declines on Friday, following a sharp drop in U.S. stocks driven by fears of increased regulatory scrutiny and a slowdown in artificial intelligence (AI) development. The U.S. market saw its steepest drop since the “Liberation Day” sell-off, triggered by tariffs a year and a half ago.
In South Korea, the KOSPI index plummeted over 8%, prompting a trading halt due to the exchange’s circuit breakers, while Japan’s Nikkei index fell by 5%. Wall Street’s volatility index rose sharply, reflecting investor anxiety as the Nasdaq composite dropped by 5.5%. Collectively, U.S. stock valuations fell by $3 trillion, as concerns grew that the newly empowered Democrats may hinder the ongoing AI boom.
The sell-off is attributed to political uncertainty affecting an already fragile AI sector, with investors questioning the returns on the massive investments being funneled into AI technologies. Analysts have indicated that chipmakers and data center equipment suppliers in South Korea, Taiwan, and Japan may be particularly at risk. These companies had already seen significant losses earlier in the week.
“It’s pretty clear there’s been a real shift in sentiment,” said Michael McCarthy, chief executive for Australia and New Zealand at Moomoo. “Market turning points are often accompanied by strong disagreement, and that shows up in the market by huge swings in either direction.” He noted that the recent sell-off reflects a new downward trend in the market.
The current market dynamics suggest investors are beginning to factor in potential local resistance to new data center projects, and analysts warn that the impact of these developments on communities has yet to be fully addressed by the markets. The Philadelphia Semiconductor Index fell dramatically by 12.2% overnight. The Nasdaq has now lost 12% from its record high just a month ago.
In Asia, bonds are expected to perform well, while the U.S. dollar weakened against safe-haven currencies like the yen and Swiss franc. Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, commented on the situation, suggesting that Treasuries could see further gains and predicting a tough day for semiconductor and memory stocks.
