Asian stock markets suffered sharp losses on Friday, with Japan’s Nikkei index falling 7 per cent shortly after the opening bell, while benchmark indices in South Korea and Taiwan dropped by more than 8 per cent. Markets across the region later showed signs of stabilisation as investors moved in to buy shares at lower prices.
European stock futures also recovered from their initial declines, with losses narrowing to 0.6 per cent. Meanwhile, Nasdaq futures gained 1.4 per cent, although investor sentiment remained uncertain.
The sell-off followed a turbulent session on Wall Street, where the market’s volatility index, widely known as the “fear gauge”, surged. The Nasdaq fell 5.5 per cent, while companies listed on the S&P 500 lost a combined $3 trillion in market value.
Investors were concerned that Democrats’ strong performance in this week’s midterm elections could lead to increased regulatory and political pressure on the artificial intelligence sector, potentially slowing its rapid expansion.
These concerns have added to existing doubts about whether companies will generate sufficient returns from their massive investments in AI-related infrastructure.
Charu Chanana, chief investment strategist at Saxo, said panic selling and investor positioning had intensified the market downturn.
She warned that simultaneous withdrawals by investors could accelerate losses, particularly when leveraged positions and forced liquidations were involved.
The market turmoil affected both individual investors and hedge funds, while policymakers and regulators moved to address the sharp decline.
Major AI chipmakers also recorded significant losses. Samsung Electronics shares fell nearly 10 per cent, while SK Hynix dropped around 12 per cent in South Korea. Japan’s Kioxia plunged 14 per cent, while Taiwan Semiconductor Manufacturing Company (TSMC) declined by as much as 8.5 per cent.
SoftBank Group, a major investor in artificial intelligence, also lost 11 per cent. Meanwhile, the cost of insuring against a potential debt default by the Japanese conglomerate rose to its highest level in four years.
Dong Baozhen, chairman of asset manager Lingtong Shengtai, said the market decline reflected a reassessment of overly optimistic expectations surrounding AI stocks. He questioned whether AI markets outside the United States could sustain their momentum after the sharp downturn on Wall Street.
Investors are increasingly concerned that a slowdown in AI infrastructure development could affect smaller companies, particularly those already facing difficulties securing financing amid higher interest rates and tighter financial conditions.
CoreWeave, a cloud computing company that has become a key indicator of investor concerns over AI-related borrowing and spending, saw its shares fall 10 per cent. The cost of insuring its debt against default over five years also climbed to a record high.
Michael McCarthy, chief executive for Australia and New Zealand at brokerage firm Moomoo, said investor sentiment had undergone a significant shift.
The latest sell-off also suggests that markets are beginning to account for growing local resistance to data centre construction. Analysts believe investors have yet to fully assess the financial and social costs these projects impose on surrounding communities.
The Philadelphia Semiconductor Index plunged 12.2 per cent overnight, while the Nasdaq, which initially moved higher following the midterm elections before reversing course, has now fallen 12 per cent from its record closing level recorded a month earlier.
However, some market analysts believe the sell-off may have been excessive and that markets could be approaching a recovery point.
Allen Huang, vice president of the equities trading department at Mega Financial Holding, said further forced selling of margin accounts was likely but suggested the market could be nearing the final stage of its downturn.
He noted that TSMC had briefly triggered its daily limit-down circuit breaker, describing the development as a possible indication that the worst of the selling pressure was approaching its end.
As equity markets weakened, investors shifted towards safer assets, driving bond prices higher across Asia. US Treasury securities, along with government bonds in Japan and China, recorded gains.
The US dollar also weakened against traditional safe-haven currencies, including the Japanese yen and Swiss franc.
Nick Ferres, chief investment officer at Vantage Point Asset Management, said US Treasury bonds could experience further gains amid the prevailing market uncertainty.
The yield on the benchmark 10-year US Treasury note stood at 4.838 per cent, close to its lowest level since September 9.
Meanwhile, Japan’s 10-year government bond yield fell by as much as nine basis points to 1.795 per cent, marking its lowest level since June 30.
