Asian Markets Plunge Amid AI Costs and US Uncertainty

Asian tech-heavy markets witnessed a major decline on Friday due to increasing regulatory pressure in the Artificial Intelligence (AI) sector and concerns over a slowdown in its development. According to a Business Standard report, the crash in US stock markets has also impacted Asian markets, marking the biggest decline since the tariff-driven 'Liberation Day' of April 2025.

South Korea's KOSPI index fell by more than 8 per cent, triggering a circuit breaker. After trading resumed, it remained at a 7 per cent decline. Japan's Nikkei fell 6 per cent, while Taiwanese markets recorded a drop of over 8 per cent. In the US, Wall Street's volatility 'fear gauge' surged, and the Nasdaq fell 5.5 per cent. A total value of $3 trillion was wiped off from S&P 500 companies.

Investors are concerned that Democrats, who won the midterm elections this week, may impose restrictions on the AI boom. This political uncertainty comes at a time when doubts already existed regarding the return on investment (ROI) against the massive expenditure being incurred in AI technology. Charu Chanun, Chief Investment Strategist at Saxo, stated, "There is clearly an element of panic in the selling, and positioning is making this shift more violent." He added that when investors unwind positions simultaneously, selling can become self-reinforcing, especially if leverage and forced liquidation are involved.

Market experts believe that chipmakers and data centre equipment suppliers in South Korea, Taiwan, and Japan are most at risk. Samsung Electronics fell nearly 10 per cent, SK Hynix 11.7 per cent, Kioxia 14 per cent, and TSMC 8.5 per cent. AI investor SoftBank Group saw an 11 per cent decline, and the cost of default insurance for SoftBank reached a four-year high on Friday.

European stock futures fell 1 per cent, suggesting that this sell-off could spread to Europe. Investors also fear that a reduction in the expansion of AI infrastructure will harm smaller companies, as high interest rates and tight financial conditions have made it difficult for them to raise funds. Neo-cloud company CoreWeave fell 10 per cent, and its 5-year credit default swap spreads reached record levels.

Michael McCarthy, CEO of MooMoo Australia and New Zealand, stated, "It is clear that there has been a real shift in sentiment. Market turning points are often associated with strong disagreement, which manifests through large swings in the market."

This decline also indicates that investors are now taking into account local opposition to the construction of data centres. According to analysts, markets have not yet fully considered the cost of such constructions on communities. The Philadelphia Semiconductor Index fell 12.2 per cent overnight, and the Nasdaq is now 12 per cent below its record high close from a month ago.

Bonds in Asia were likely to rise, while the US dollar fell against safe-haven currencies such as the Yen and Swiss Franc. According to Nick Ferces, Chief Investment Officer at Vantage Point Asset Management, Treasuries may rally further, but it will be a bad day for semiconductor and memory stocks. The yield on the benchmark US 10-year Treasury note was 4.838 per cent, around the lowest level since September 9.