TOKYO: Asian stock markets suffered sharp losses on Friday, with technology-heavy indices in Japan, South Korea and Taiwan plunging as fears over increased regulatory scrutiny and a potential slowdown in artificial intelligence (AI) infrastructure spending triggered a major global sell-off.
The downturn followed Wall Street’s steepest decline since the tariff-driven “Liberation Day” market turmoil in April 2025, raising concerns about the sustainability of the global AI investment boom.
Japan’s benchmark Nikkei 225 plunged around 7 per cent shortly after the opening bell, while South Korea’s and Taiwan’s major stock indices dropped more than 8pc. Markets subsequently recovered some ground as investors stepped in to buy shares at lower prices.
European stock futures also trimmed their initial losses, trading around 0.6pc lower, while Nasdaq futures rebounded 1.4pc, although overall market sentiment remained fragile.
The sell-off on Wall Street was particularly severe. The Nasdaq Composite plunged 5.5pc, while approximately $3 trillion in market value was wiped off S&P 500 companies. The CBOE Volatility Index, widely known as Wall Street’s fear gauge, also surged as investors assessed the potential impact of political developments and regulatory uncertainty on the AI sector.
Market anxiety was partly linked to concerns that Democrats, following their strong performance in this week’s US midterm elections, could push for greater regulatory oversight of the technology industry and potentially slow the AI investment boom.
However, the political uncertainty has compounded existing concerns about whether technology companies will generate sufficient returns from their enormous investments in artificial intelligence infrastructure.
“There is also clearly an element of panic in the selling, and positioning is making the adjustment much more violent,” said Charu Chanana, chief investment strategist at Saxo.
She warned that simultaneous efforts by investors to unwind their positions could intensify market pressure, particularly where leverage and forced liquidations are involved.
The turmoil spread across major Asian technology companies. Samsung Electronics and SK Hynix plunged nearly 10pc and 12pc, respectively, in South Korea. Japan’s Kioxia dropped 14pc, while Taiwan Semiconductor Manufacturing Company (TSMC) fell as much as 8.5pc.
SoftBank Group, a major investor in artificial intelligence ventures, also declined 11pc, while the cost of insuring against a potential debt default by the Japanese conglomerate rose to its highest level in four years.
Dong Baozhen, chairman of asset manager Lingtong Shengtai, said the market downturn exposed unrealistic expectations surrounding AI-related stock valuations.
He questioned whether AI-driven bullish sentiment in other markets could survive independently if the US technology sector continued to weaken.
Growing concerns over AI investment
Investor concerns have increasingly focused on the sustainability of the massive expansion in AI infrastructure, particularly data centres and computing capacity.
A slowdown in infrastructure spending could put additional pressure on smaller technology companies that depend on external financing and are already facing higher borrowing costs and tighter financial conditions.
US-based cloud computing company CoreWeave, which has become an important indicator of investor sentiment towards AI-related borrowing and expenditure, fell 10pc. Its five-year credit default swap spreads also widened to record levels, reflecting growing concerns about its credit risk.
Michael McCarthy, chief executive for Australia and New Zealand at brokerage Moomoo, said investor sentiment had clearly shifted.
Market analysts also pointed to growing local opposition to data centre construction, with concerns that the financial, environmental and infrastructure costs imposed on communities have yet to be fully reflected in market valuations.
The Philadelphia Semiconductor Index plunged 12.2pc overnight, while the Nasdaq Composite has lost around 12pc from its record closing level a month earlier.
Despite the severity of the sell-off, some market analysts believe the downturn may be approaching its final stages, arguing that excessive selling and forced liquidations could create opportunities for a recovery.
Allen Huang, vice president of the equities trading department at Mega Financial Holding, said further liquidation of margin positions could signal that markets were nearing the final phase of capitulation.
He noted that TSMC had briefly triggered its daily circuit breaker during the downturn, describing the heavy selling in the semiconductor giant as an indication of widespread liquidation across the market.
Investors seek refuge in bonds and safe-haven currencies
As equity markets came under pressure, investors shifted towards safer assets, driving government bond prices higher across Asia.
US Treasuries, along with Japanese and Chinese government bonds, attracted demand, while the US dollar weakened against traditional safe-haven currencies, particularly the Japanese yen and Swiss franc.
Nick Ferres, chief investment officer at Vantage Point Asset Management, suggested that US Treasury bonds could see further gains as investors continue to seek protection from market volatility.
The yield on the benchmark US 10-year Treasury note stood at 4.838pc, hovering near its lowest level since September 9. Meanwhile, Japan’s 10-year government bond yield fell by as much as nine basis points to 1.795pc, its lowest level since June 30.
The latest market turmoil highlights growing uncertainty surrounding the global artificial intelligence boom, as investors reassess technology valuations, infrastructure spending, financing risks and the potential for tighter regulatory oversight.
The sell-off raises a critical question for global markets: whether the AI investment boom represents a sustainable technological transformation or whether valuations have moved too far ahead of the actual financial returns.
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