Taiwan’s benchmark Taiex index plunged nearly 9% on Friday, suffering its largest intraday point drop in history before recovering slightly to close down 4.51% at 39,701.64 points. The dramatic sell-off pushed the index into a bear market and marked its worst weekly performance since 2001, mirroring equally severe declines across key Asian technology hubs. In South Korea, the KOSPI index dropped nearly 9% at the open, forcing a 20-minute circuit breaker to halt trading—the 17th such event in its history and the 11th this year alone. Japan’s Nikkei 225 also capitulated, tumbling by as much as 7.1% and breaking below the significant 60,000 mark.
The immediate catalyst for this turmoil was the decisive victory of the Democratic Party in the U.S. midterm elections, which saw them gain control of both chambers of Congress. This "blue sweep" instantly ignited investor fears of increased regulatory scrutiny over the burgeoning artificial intelligence industry and a potential slowdown in the massive data center expansion that has fueled the AI boom. Experts noted that markets were being "punished according to their dependence on the U.S. AI infrastructure cycle," given the deep linkages between Asian chipmakers and global AI supply chains.
The sell-off in Asia followed a brutal session on Wall Street on Thursday, where the tech-heavy Nasdaq Composite Index dropped 5.52%, entering a correction phase by falling more than 10% from its all-time high. The S&P 500 also saw a significant decline of 4.36%, while the Philadelphia Semiconductor Index, a critical barometer for the chip industry, plummeted by an alarming 12.25%.
Taiwan's Taiex ultimately closed down 4.51%, cementing its bear market status and concluding its worst weekly performance in over two decades. South Korea's KOSPI, despite a partial recovery after its trading halt, finished the day down 6%, closing at 5059.60 and falling below the critical 5,000 mark for the first time in nine months. Japan’s Nikkei 225 closed down 5.96% at 57,434.77, also entering bear market territory and recording its steepest daily decline since April 2025.
Semiconductor stocks, the very engines of the region's AI rally, bore the brunt of the losses. Taiwan Semiconductor Manufacturing Co. (TSMC), a critical supplier of advanced chips and accounting for over 40% of the Taiex's weighting, opened at its daily limit-down price before closing down 4.69%.
In South Korea, memory chip giants SK Hynix and Samsung Electronics saw their shares plunge by as much as 12% and nearly 10% respectively at their lowest points. SK Hynix ultimately closed down 10% and Samsung at 6.4%, reflecting intense pressure on the components crucial for AI infrastructure. These two companies alone account for nearly half of the KOSPI's value, making their performance pivotal to the index's stability.
Japanese chipmakers were not spared either. Kioxia, a major flash memory producer, dropped 14%, while chip tester Advantest, essential for advanced semiconductor manufacturing, lost over 11%. Tech investor SoftBank Group, a significant player in AI investments globally, also saw its shares decline by more than 11%, indicating a broad-based retreat from AI-related holdings.
The political implications of the U.S. election outcome were quickly highlighted by analysts. Nathan Peterson, director of derivatives research and strategy at Schwab Center for Financial Research, commented that the Democratic sweep "exacerbated concern" over the future funding for AI infrastructure buildouts. This sentiment was underscored by statements from newly elected officials, such as Democratic Governor-elect Gina Hinojosa of Texas, a major data center hub, who announced the suspension of approvals for new data centers until the state implements laws to protect citizens from potential harm.
In response to the market chaos, authorities in both Taiwan and South Korea took swift action to try and stem the bleeding. South Korea’s Finance Minister Lee Hyoung-il convened an emergency market situation check meeting and signaled a temporary loosening of collateral rules for brokerage firms. This measure aims to prevent excessive forced selling, which could further destabilize the equities market, particularly given the high concentration of chipmakers.
Taiwan's Financial Supervisory Commission announced new, tighter short-selling rules, reducing the permitted volume of intraday short-selling orders and increasing the minimum margin requirement. The Ministry of Finance also stated its readiness to deploy its NT$500 billion (approximately $15 billion) stock stabilization fund to support the market if necessary, while instructing state-owned banks to actively support the market.
These economies have become deeply intertwined with the global AI infrastructure cycle, acting as the primary manufacturers of the advanced semiconductors and components that power artificial intelligence systems worldwide. Taiwan, with TSMC at its core, holds a near-monopoly on the most advanced chip fabrication, while South Korea’s Samsung and SK Hynix dominate the memory chip market crucial for AI processing. Japan also contributes significantly through its specialized equipment and materials. This regional concentration has meant that their economic growth has been heavily buoyed by the insatiable global demand for AI hardware.
Rajeev De Mello, global macro portfolio manager at Gama Asset Management SA, suggested that investors would likely "diversify more broadly and reduce their concentration in the AI trade."