Asian stock and foreign exchange markets swung on the 4th after Democrats won majorities in both the U.S. Senate and House in the midterm elections. As concerns spread that a Democrat-controlled Congress may tighten regulations on artificial intelligence (AI) and the cryptocurrency industry, and that key State Governments could revisit data center policies, Asian semiconductor and AI-related shares fell across the board. As U.S. Government Bonds yields fell, the dollar weakened in tandem.
As the results of the U.S. midterm election held the previous day were reported during Asian trading hours on the 4th (local time), AI-related stocks slumped across Asian markets, including Korea and Japan. In the Korea Exchange (KRX) stock market, Samsung Electronics(005930) and SK hynix(000660), which had risen in the 3% and 5% ranges in early trading, respectively, ended slightly lower. In the Tokyo Stock Exchange, semiconductor bellwether Kioxia fell 5.4%. TSMC, which accounts for 40% of Taiwan Stock Exchange weighting, slipped 1.5%.
U.S. stock index futures also fell sharply in premarket trading before paring some losses. Charu Chanana, Saxo's chief investment strategist, told Reuters that "market investors are pricing in a stronger-than-expected Democratic surge," adding that "Democratic strength could lower expectations for additional fiscal stimulus."
With control of Congress shifting to Democrats, the likelihood of federal-level probes and legislative regulations targeting big tech and the cryptocurrency industry has grown. Jake Dollarhide, Longbow Asset Management CEO, said, "Democratic control of Congress is a headwind for tech stocks and could exert potential regulatory pressure across all AI fields," adding, "It could slow the AI growth we take for granted." Nick Peles, Vantagepoint Asset Management CIO, also said, "The risk factor is tighter regulation across the AI and cryptocurrency ecosystems." Tim Sun, HashKey senior researcher, likewise said, "The shift in the U.S. political landscape could delay cryptocurrency legislation and the creation of an institutional framework," adding, "All of this is acting as a strong headwind for the cryptocurrency market."
In particular, markets flagged potential permitting and power supply disruptions for data centers stemming from the Texas and Georgia gubernatorial election results, rather than federal-level policies, as a new key risk. Even if U.S. President Donald Trump vetoes congressional bills, approvals for data center construction and power grid connections are dictated by State Governments. Tapas Strickland, Moomoo Australia-New Zealand chief market strategist, said, "There are significant concerns that the pace of AI infrastructure buildout could slow considerably as we assess how Texas will exercise its authority over AI-related policies," adding, "Texas and Georgia together account for roughly one-third of total AI data center expenditure and projects; if both states seat Democratic governors, the likelihood of a moderation in pace is very high and could set off ripple effects across the broader AI industry."
However, some analysts said the sharp drop in Asian semiconductor stocks tied to these U.S. political variables is merely a reaction to short-term risk-off sentiment, and is far removed from any real hit to sales or order performance for Asian chipmakers, including those in Korea. Rather than an immediate pullback in big tech capital spending, political uncertainty has piled onto recent debates about an AI peak over the past few weeks, triggering short-term selling, they said. Kazunori Datebe, Daiwa Asset Management chief strategist, said, "Japanese AI stocks are already cheap, and corporate earnings are solid, so the downside should be limited."
