After the Democratic Party's decisive victory in the U.S. mid-term elections, concerns about tighter regulation of AI quickly swept through the Asian chip sector. SK SK Hynix tumbled by over 9%, Samsung fell more than 6%, and South Korea's KOSPI stock plummeted by 5.2% at one point, triggering a circuit breaker. In sharp contrast, Hong Kong and A-share markets both saw strong gains, with the Hang Seng Tech Index surging by 5%. Goldman Sachs' trading desk has clearly called for a strategy of "going long on multi-cloud providers and shorting semiconductors."
The Democratic Party achieved a great victory in the mid-term elections in the United States, sparking concerns in the market about stricter regulation of artificial intelligence. Investors accelerated their withdrawal from the semiconductor sector, and semiconductor stocks in Japan and South Korea suffered heavy losses. At the same time, Hong Kong and A-share markets both saw significant gains, with the Hang Seng Technology Index soaring by 5%.
South Korean and Japanese semiconductor stocks led the decline in the Asia-Pacific market, with the Seoul Composite Index in South Korea experiencing a decline of up to 5.2% at one point. The South Korean Exchange activated the SIDECAR mechanism on Thursday morning, suspending the KOSPI programmed selling orders to curb the spread of selling pressure. U.S. stock futures also came under pressure, with NASDAQ 100 index futures falling by 1% and S&P 500 index futures falling by 0.2%, indicating that market concerns about technology and the AI sector are being transmitted to Western markets.
In contrast, the Hong Kong stock market opened strongly and continued to rise; the Hang Seng Index rose by 3%, while the Hang Seng Tech Index soared by 5%. Tech stocks such as Alibaba-W, Tencent Holdings, JD Group- SW, and Xiaomi Group-W all saw significant increases.
However, with adjustments in technology stocks such as optical communications and storage concepts, AI large model stocks like Zhipu, and MINIMAX-W also saw declines.
The underlying logic supporting the current rebound of Hong Kong stocks still lies in the extremely compressed valuation levels. According to calculations by CITIC Construction Investment, as of October 25th, the forward price-earnings ratio of the Hang Seng Tech Index was approximately 14.5 times, which is within the 7th percentile of its historical range.
The core logic behind the sell-off in chip stocks is as follows: With Democrats sweeping both houses of Congress, there are concerns that their promises to impose stricter restrictions on data center development during the election campaign, once fulfilled, will directly suppress the demand for AI infrastructure investment, thereby impacting chip demand as well.
KCM Trade Chief Market Analyst Tim Waterer stated: "The Democratic Party's comprehensive victory has significantly increased the likelihood of AI data center construction hitting regulatory barriers, putting continued pressure on the semiconductor sector throughout Asia."
Korean and Japanese chip stocks tumbled, triggering circuit breaker protection for the Seoul Composite Index
The South Korean market was hit hard. The memory chip giant SK Hynix saw its shares fall by more than 9%, and Samsung Electronics declined by over 6%. Driven down by these two leading chip companies, the KOSPI index's decline once expanded to 5.2%. In response, the South Korean exchange immediately activated its SIDECAR programmed trading suspension mechanism to prevent a market collapse.
Japanese semiconductor stocks also suffered heavy selling pressure. Chip testing equipment manufacturer Advantest tumbled 11.69%, Lasertec plummeted 11.76%, Tokyo Electron fell 9.89%, and Renesas Electronics dropped 6.37%. SoftBank Group also lost more than 6%.
In contrast, the overall performance of the Japanese market was mixed. The Nikkei 225 index saw its decline widen to 1% at one point, but the Tosei Index ( Topix ) managed to rise by over 1% against the trend, benefiting from the recovery in consumer and financial sectors driven by falling oil prices, which offset some of the decline in tech stocks.
The Democratic Party's landslide victory has triggered regulatory concerns related to AI, becoming the fuse for a sell-off.
The direct trigger for this round of selling in tech stocks was the results of the U.S. mid-term elections. The Democratic Party achieved comfortable majorities in both the Senate and the House of Representatives and won several governorships. In Texas, Democratic candidate Gina Hinojosa clearly advocated for stricter regulations on data center development during the campaign and ultimately won the gubernatorial election, which suddenly heightened market concerns about tighter infrastructure regulation under AI.
Real-time observations from Goldman Sachs' trading desk confirm this market logic. According to Goldman Sachs John Flood, the most prominent theme on the trading desk currently is to go long on cloud computing service providers and short on semiconductors. The logic behind this is as follows: if data center construction is restricted, the supply of computing power becomes even scarcer. Cloud vendors can use this scarcity to raise prices, reduce capital expenditures, and use the extra cash to repurchase shares; however, for chip demand, this prospect directly constitutes a negative factor.
Tandem Investment Advisors Portfolio Manager Jordan Watson noted that the market divergence following the significant rise in U.S. stocks on Wednesday is not a one-time solution. "I would not consider Wednesday's stock market performance as a sign that everything is normal; rather, it seems to be a rational adjustment by the market to the scale of infrastructure capital investment and its expected returns under AI. Fluctuations ahead are inevitable."
Market differentiation: Consumption and finance benefit, while technology faces pressure
Despite the sell-off in the semiconductor sector, the overall performance of the Asia-Pacific market was mixed. Australia's S&P/ASX 200 rose by about 2%, and Hong Kong's Hang Seng Index increased by 2.4%, both benefiting from the improved risk appetite following the sharp drop in oil prices. The Bloomberg Dollar Spot Index fell by 0.2%, the yield on 10-year U.S. Treasury bonds decreased by 4 basis points to 4.85%, and gold rose by 1.5% to $4,122.14 per ounce.
The cooling of the crude oil market is another main trend in this round of market fluctuations. Brent crude tumbled more than 8% on Wednesday to below $95, as markets bet that a Democratic victory would accelerate the Trump administration's efforts to end the war with Iran. Bloomberg reported that the leader of the Senate minority party, Chuck Schumer, has publicly pledged to push for a ceasefire in the Middle East.
There are differing opinions regarding the medium to long-term trend of the investment theme AI. Ulrike Hoffmann - Burchardi of UBS Global Financial Management believe that increased regulatory oversight by Congress does not necessarily mean the end of the AI investment cycle, as underlying demand remains strong. Ryan Detrick from Carson Group pointed out that "after the uncertainty of the elections was resolved, buying sentiment has fully entered the market." Scott Rubner, the head of stock strategy at Citadel Securities, also expects that as the election suspense is lifted and corporate profits remain robust, the U.S. stock market will continue its upward trend for the year.
Investors' attention is turning to the economic data and corporate financial reports that are about to be released. On Thursday, the number of people receiving unemployment benefits at the beginning of the week will be announced, and on Friday, the October non-farm payroll report will be released. In terms of financial reports, Tapestry, Kimberly-Clark, and ConocoPhillips will release their earnings in the early morning on Thursday, while Airbnb and Akamai will follow suit in the afternoon.
In terms of chip stocks, Qualcomm announced quarterly results that exceeded expectations after the market closed on Wednesday and provided strong guidance, yet the stock price still fell by about 6.5%, reflecting the current market sentiment's pressure on the entire sector. The revenue forecast for ARM Holdings is largely in line with analysts' estimates, indicating that the expansion of its data center business is to some extent offsetting the weakness in the smartphone market.
