The Democratic Party's sweeping victory in the US midterm elections has sparked market concerns over tighter regulation of artificial intelligence, prompting investors to accelerate their exit from the semiconductor sector, with semiconductor stocks in Japan and South Korea taking a heavy hit.
At the same time, Hong Kong and A-share markets rallied together, with the ChiNext Index surging 3% after reversing earlier losses, and the Hang Seng Tech Index soaring 5%.
Semiconductor stocks in South Korea and Japan led declines across the Asia-Pacific region, with South Korea's KOSPI Composite Index widening losses to as much as 5.2% at one point. The Korea Exchange activated the SIDECAR mechanism on Thursday morning, halting program selling on the KOSPI to curb the spread of the selloff. US stock futures also came under pressure, with Nasdaq 100 index futures falling 1% and S&P 500 index futures dropping 0.2%, signaling that market anxiety over the technology and AI sectors is transmitting to Western markets.
In contrast, A-shares and Hong Kong stocks posted strong gains, with the ChiNext Index rallying 3% after falling 2%, and both the Hang Seng Index and Hang Seng Tech Index surging, with the former up 3% and the latter soaring 5%, while internet technology stocks posted significant gains. Alibaba, Tencent, JD.com, and Xiaomi all surged. However, technology stocks in optical modules and memory chips pulled back, and AI large model stocks also declined.
The core logic behind the semiconductor selloff is that the Democratic Party swept both chambers of Congress, and the market fears that if their campaign promises to impose stricter restrictions on data center development are fulfilled, it would directly suppress AI infrastructure investment demand and consequently hit chip demand. Tim Waterer, chief market analyst at KCM Trade, said, "The Democratic Party's comprehensive victory has significantly raised the likelihood that AI data center construction will hit a regulatory wall, which continues to weigh on the semiconductor sector across Asia."
Korean and Japanese chip stocks tumble, KOSPI triggers circuit breaker protection
The Korean market bore the brunt of the selloff. Memory chip giant SK Hynix fell more than 9% at one point, while Samsung Electronics dropped over 6%. Dragged down by the two chip leaders, the KOSPI index widened losses to as much as 5.2%, prompting the Korea Exchange to activate the SIDECAR program trading suspension mechanism to halt the stampede-like decline.
Japanese semiconductor stocks also faced fierce selling. Chip testing equipment maker Advantest plunged 11.69%, Lasertec tumbled 11.76%, Tokyo Electron fell 9.89%, Renesas Electronics dropped 6.37%, and SoftBank Group also declined more than 6%.
By contrast, the broader Japanese market showed divergence. The Nikkei 225 Index widened losses to as much as 1%, but the Topix Index rose more than 1% against the trend, benefiting from a recovery in consumer and financial sectors driven by falling oil prices, which offset some of the technology stock declines.
Democratic landslide triggers AI regulatory concerns, serving as the trigger for the selloff
The direct catalyst for this round of technology stock selling was the US midterm election results. The Democratic Party secured comfortable majorities in both the Senate and the House of Representatives and won multiple gubernatorial races. In Texas, Democratic candidate Gina Hinojosa explicitly advocated for stricter controls on data center development during her campaign and ultimately won the gubernatorial election, sharply escalating market concerns over tighter regulation of AI infrastructure.
Goldman Sachs trading desk's real-time observations confirmed this market logic. According to Goldman Sachs' John Flood, the most prominent theme on the trading desk is "long hyperscale cloud providers, short semiconductors" 鈥?the underlying logic being that if data center construction is restricted, computing power supply becomes scarcer, allowing cloud providers to raise prices on the basis of scarcity while reducing capital expenditure and using excess cash for share buybacks; for chip demand, this prospect is directly bearish.
Jordan Watson, portfolio manager at Tandem Investment Advisors, cautioned that the market divergence following Wednesday's US stock rally is not a one-time resolution, saying, "I would not view Wednesday's stock market performance as a signal that everything is normal, but rather as a rational correction by the market regarding the scale of AI infrastructure capital investment and its return expectations. Volatility ahead is inevitable."
Market divergence: Consumer and financial sectors benefit, technology under pressure
Despite the semiconductor selloff, Asia-Pacific markets showed mixed performance overall. Australia's S&P/ASX 200 rose about 2%, and Hong Kong's Hang Seng Index gained 2.4%, both benefiting from improved risk appetite following the sharp drop in oil prices. The Bloomberg Dollar Spot Index fell 0.2%, the 10-year US Treasury yield declined 4 basis points to 4.85%, and gold rose 1.5% to $4,122.14 per ounce.
The cooling of the crude oil market was another main thread in this round of market rotation. Brent crude plunged more than 8% on Wednesday to below $95, as the market bet that the Democratic victory would accelerate the end of the Trump administration's Iran war. According to Bloomberg, Senate Minority Leader Chuck Schumer has publicly pledged to push for a Middle East ceasefire.
Regarding the medium- to long-term direction of the AI investment theme, views remain divided. Ulrike Hoffmann-Burchardi of UBS Global Wealth Management believes that increased congressional regulation does not necessarily end the AI investment cycle, as underlying demand remains solid. Ryan Detrick of Carson Group noted that "with election uncertainty resolved, buying is coming in across the board." Scott Rubner, head of equity strategy at Citadel Securities, also expects US stocks to extend their year-to-date gains as election suspense is eliminated and corporate earnings remain strong.
Investors' attention is now shifting to upcoming economic data and corporate earnings. Weekly initial jobless claims will be released on Thursday, followed by the October nonfarm payrolls report on Friday. On the earnings front, Tapestry, Kimberly-Clark, and ConocoPhillips will report results Thursday morning, with Airbnb and Akamai following in the afternoon.
Among chip stocks, Qualcomm reported better-than-expected quarterly results and provided strong guidance after the bell on Wednesday, but its shares still fell about 6.5%, reflecting the current market sentiment weighing on the entire sector. ARM Holdings' revenue guidance was broadly in line with analyst estimates, indicating that its data center business expansion is to some extent offsetting weakness in the smartphone market.
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