GLOBAL MARKETS-Asia stocks tumble after AI rout rocks US markets

A rout ​in global technology stocks deepened on Friday as fear that the Democrat's victory ‌in the ​US midterm elections would increase regulatory scrutiny of AI and slow down AI build-out gripped markets, sending investors to the safety of bonds. Japan's Nikkei slumped 6%, set for its deepest one-day drop since April 2025. Benchmark share price indices in South Korea and Taiwan similarly plunged more than 8% after the opening bell, before cutting losses as authorities scrambled to stem the selling.

Wall ‌Street's volatility "fear gauge" soared, the Nasdaq sank 5.5% and $3 trillion was wiped off S&P 500 firms, with investors worried Democrats, who dominated midterm elections this week, will apply brakes to the AI boom. The political jitters are hitting an AI trade already on shaky footing due to worry about return on companies' enormous investment in AI-related infrastructure, with the meltdown spooking retail investors and hedge funds alike.

"There is also clearly an element of panic in the selling, and positioning is making the adjustment much more violent," said Charu Chanana, chief ‌investment strategist at Saxo. "When investors begin unwinding these positions simultaneously, the selling can become self-reinforcing, particularly if leverage and forced liquidations are involved."

AUTHORITIES ATTEMPT TO SOOTHE NERVES By the Asian afternoon, stocks appeared to stabilise as authorities worked to soothe nerves, ‌with South Korean Finance Minister Lee Hyoung-il temporarily easing rules on retail investors' leveraged investments.

Multiple sources told Reuters the Ministry of Finance in Taiwan called senior executives at state-owned banks in the morning and instructed them to support the market. Taiwan stocks closed down 4.5%, recovering somewhat from their early morning slump. Nasdaq futures were up 0.6% while European stock futures were last down 0.9%, indicating sentiment remained fragile.

AI chipmakers Samsung Electronics and SK Hynix fell nearly 10% and 12% respectively in South Korea. Kioxia plunged 14% in Japan while TSMC fell as much 8.5% in Taiwan. AI investor SoftBank Group slid 11%, while the cost of insuring against ⁠the Japanese firm ​defaulting on debt jumped to its highest in four years.

"The selloff ⁠shows that AI stock prices had been built on rosy illusions about the future, and now that illusion is gone," said Dong Baozhen, chairman of asset manager Lingtong Shengtai. "The US stock market has been the standard-bearer and backbone of the global AI bull run. Now that backbone has snapped. Can AI ⁠bull markets elsewhere hold up on their own?"

SENTIMENT SHIFTS, CRACKS EMERGE Investor fear also centred on whether a stalling AI infrastructure expansion could hurt smaller firms whose capacity to raise funds has already been limited by higher interest rates and tighter financial conditions.

Neocloud firm CoreWeave, which has become ​a barometer of investor anxiety over heavy AI spending and borrowing, slumped 10%, while its five-year credit default swap spreads widened to a record level. "It's pretty clear there's been a real shift in sentiment," said Michael McCarthy, chief executive ⁠for Australia and New Zealand at brokerage Moomoo.

The selling indicates investors are starting to factor in increased local opposition to data centres, with analysts saying markets have yet to fully consider the cost such building has imposed on communities. Texas Governor-elect Gina Hinojosa on Thursday said the state will introduce laws to protect residents with ⁠regards ​to data centres, citing their impact on rural communities.

Still, some analysts said the selloff was overdone and the bottom was not far off. "Today we are bound to see further liquidation of margin accounts, which suggests we are likely in the final stage of capitulation," said Allen Huang, a vice president of Mega Financial Holding's equities trading department.

"Even TSMC hit its daily limit down circuit breaker at one point, which typically marks the tail end of a downturn. When TSMC gets sold off, that ⁠means all stocks have been thoroughly dumped," Huang said. FINDING REFUGE IN BONDS

Bonds gained in Asia, with US Treasuries as well as government bonds in Japan and China rising, while the US dollar slipped against haven currencies such as the yen ⁠and Swiss franc. "Bonds are increasingly behaving like bonds again, with income re-emerging as ⁠the primary driver of returns and restoring their traditional diversification benefits," said Masahiko Loo, chief fixed income strategist at State Street Investment Management.

"This looks more like a reassessment of AI policy risk than a reassessment of the AI cycle." The yield on the benchmark US 10-year Treasury note was at 4.838%, hovering near the lowest level since September 9. The 10-year JGB yield dropped ‌as much as 9 bps to 1.795%, the ‌lowest since June 30.