The carnage that swept through Wall Street on Wednesday night has now completed its journey around the world, and the wreckage in Asia is severe. Japan's Nikkei 225 tumbled below the psychologically significant 60,000-point threshold for the first time in six months, while South Korea's Kospi slipped under 5,000 — levels that would have seemed unthinkable when both indices were touching all-time highs in September. Taiwan's TAIEX, home to the chipmakers that have become proxies for AI optimism, fared even worse in percentage terms.
The proximate cause is familiar by now: Tuesday's Democratic sweep of the US midterms has introduced genuine uncertainty into the regulatory environment for artificial intelligence. Investors who had priced in frictionless data-center permitting and minimal antitrust scrutiny are recalibrating in real time. But the scale of the Asian selloff suggests something deeper — a recognition that the AI trade was always more levered to American policy than its global footprint implied.
The Nikkei's six-month round trip
Japan's benchmark index had been a surprising beneficiary of the AI boom, lifted by semiconductor equipment makers and trading houses with exposure to the tech supply chain. The drop below 60,000 erases gains accumulated since late spring and puts the index roughly flat for 2026. Tokyo traders described the session as "complete carnage," with selling pressure intensifying in the final hour as margin calls forced liquidations. The yen's modest strengthening against the dollar — a reversal of the carry-trade dynamics that had supported Japanese equities — added to the pain.
Seoul and Taipei feel the chill
South Korea's Kospi, heavily weighted toward Samsung Electronics and SK Hynix, dropped through 5,000 points in a session that saw memory-chip stocks lead the decline. The logic is straightforward: if American hyperscalers slow their data-center buildouts, demand for high-bandwidth memory falls. Taiwan's semiconductor giants faced similar pressure, with the island's currency also weakening as foreign investors pulled capital.
The synchronization of these moves is notable. For much of the past two years, Asian tech indices have traded as leveraged bets on American AI enthusiasm. That correlation now cuts both ways.
What comes next
Markets are pricing in a scenario where the incoming Democratic House majority uses its oversight powers to slow-walk data-center permits and investigate the concentration of AI capabilities among a handful of firms. Whether that scenario materializes remains uncertain — the Senate's Democratic majority is slim, and the Trump administration retains executive authority over much of the regulatory apparatus. But uncertainty itself is repricing, and the premium investors paid for AI exposure is evaporating.
Our take
The AI trade was always a bet on American exceptionalism — on the idea that the US would remain the uncontested center of compute, capital, and permissive regulation. Tuesday's results didn't end that exceptionalism, but they introduced friction where investors had assumed frictionlessness. Asian markets, which had borrowed American optimism without American political insulation, are now returning what they borrowed. The global reckoning is just getting started.
