Global Sell-off Spreads to Asia: Stock Markets Plummet, Dollar Strengthens

Following the strong victory of the Democrats in the U.S. midterm elections, concerns about tighter regulations in the artificial intelligence sector have led to a sell-off in global markets that has now reached Asia. As losses deepened in the stock markets of Japan and South Korea, the Taiwan stock market entered a bear market. Steps taken by authorities to support the markets and a recovery in U.S. futures indices limited some of the losses in subsequent trading.

Technology Stocks Plummet in Asian Markets

The MSCI Asia Pacific Index fell by 3.8%, while Japan's Nikkei 225 index dropped by 5.8%, marking its largest daily loss since April 2025. In South Korea, the Kospi index's loss reached 8.8% during the day, triggering a circuit breaker. Shares of Samsung and SK Hynix lost more than 5% in value. Taiwan's benchmark index fell by 4.5%, entering a bear market.

At the center of the sell-off is the concern that the Democrats' victory in Congress could lead to tighter regulations on data centers in the U.S. and slow the growth of artificial intelligence infrastructure. The Philadelphia Semiconductor Index has declined by about 16% this week, heading for its worst weekly performance since April 2025.

U.S. President Donald Trump blamed the Democrats for the losses in Americans' 401(k) retirement accounts following the deepening sell-off in technology and AI-related stocks. Trump's Republican Party experienced significant losses in Tuesday's midterm elections.

South Korea Takes Steps to Limit Forced Sales

South Korea temporarily lifted the rule requiring collateral to be at least 140% of the loans used in margin trading. This step aimed to limit forced sales that could occur through brokerage firms. Taiwan's financial regulator was also expected to announce measures to stabilize the market.

With supportive news and a recovery in U.S. stock futures, regional stock markets regained some of their losses. The Nasdaq 100 futures index rose by 0.8%.

Safe Haven Demand Supports Bonds

Risk aversion brought buying into the bond markets. China's 10-year government bond yield fell to its lowest level in history during the day due to ample liquidity and safe haven demand. The recent change in the policy interest rate was also considered an effective monetary easing, contributing to this movement.

While U.S. Treasury bonds maintained their gains from Thursday, Japanese government bonds also rose on Friday. The dollar strengthened against all other G10 currencies.

Brent Rises but Weekly Losses Reach Historic Levels

Brent crude oil rose by 1.4% to $99.70 per barrel after a 3.9% increase in the previous session. Nevertheless, Brent is heading for its largest weekly loss since April 2020.

Throughout the week, the pricing was influenced by the possibility of an end to the months-long war in the Middle East. Initially, investors assessed that the Democrats' victory in Congress could accelerate the end of the conflict with Iran, but later concerns about data center regulations triggered widespread selling in technology stocks.

Canada Plans to Increase Investments Through Borrowing

Canadian Prime Minister Mark Carney reiterated his commitment to a plan to accelerate investments using the public balance sheet. The plan envisions increased borrowing and the use of billions of dollars in rising tax revenues to expand the economy's production capacity.

The impact of the election result on the markets shifted from expectations of an end to the war to concerns that investments in artificial intelligence could slow down. The approximately 16% weekly loss in semiconductor stocks was the most evident result of this change. While support measures in Asia partially limited daily losses, Brent's recent rise over the last two sessions, despite heading for a historically large weekly decline, highlighted the sharp directional changes in the oil market.

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