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On Friday, the Kospi plunged more than 8% and fell below 5,000 for the first time since February. Investors clearly fear the Democratic sweep on November 3 will delay or halt data center construction in the US. Chip makers SK Hynix and Samsung Electronics each fell more than 10%.
Fears of a chilling effect on AI investment are rapidly spreading across the region. Japan’s Nikkei 225 dropped below 60,000 for the first time since mid-May, pulled down by AI-linked names such as Kioxia, SoftBank Group and Advantest.
Both the Nikkei and Topix indexes are in bear market territory. As is Taiwan, where TSMC shares fell as much as 9.8% on Friday, which was, by many measures, the worst day for the world’s leading chip maker since the pandemic.
The rout began in New York on November 5, with chipmakers at the center of the storm. AMD and Micron each fell more than 15%, and Nvidia dropped 9%. The Philadelphia Semiconductor Index, which tracks 30 major US chipmakers, plunged more than 12%.
Nomura’s Charlie McElligott described hedge funds as “shooting the generals,” meaning they were targeting the stocks that led the rally. Saxo Bank strategist Charu Chanana said the correction reflects both a reassessment of US infrastructure demand and how crowded investors had become in the same AI winners.
Democrats beat Republicans for several reasons, including inflation tied to the Iran war. But a widening backlash against the data centers that power AI was also a major factor, along with unease over the Trump administration’s hands-off approach to AI regulation.
Texas was the starkest example. Governor Greg Abbott, who once vowed to make the state the “epicenter of AI development,” lost to Democrat Gina Hinojosa. She campaigned against data center construction and Abbott’s ties to Elon Musk and other tech billionaires.
“When I am governor,” she said, “we will put a pause – a moratorium on any agreements until we can pass laws to make sure that the people of El Paso and Texas have a seat at the table to decide if and how these data centers come into their communities.”
Musk, who put more than US$470 million into House and Senate races, saw Texas Republican Ken Paxton lose to Democrat James Talarico in a Senate contest. Musk’s response on Wednesday: “Data centers in space looking pretty appealing right now.” OpenAI co-founder Greg Brockman also backed pro-AI and crypto groups, which largely failed to gain traction.
In Georgia, anti-data-center sentiment helped elect Democrat Keisha Lance Bottoms as the state’s first Black woman governor. Atlanta has until now been one of the fastest-growing data center markets, according to CBRE.
This week, voters greenlit, or are on track to, at least 33 local ballot measures to ban, pause or limit data centers. A more restrictive environment for data centers under Democratic rule could create “incrementally more negative sentiment for AI infrastructure exposed names,” said Amit Daryanani, analyst at Evercore ISI.
Following the midterms, strategist David Roche, president at Quantum Strategy, said, “US foreign policy becomes more unpredictable. War is more, not less, likely. Dying fish flap hardest.”
In a report this week, BMI, a unit of Fitch Solutions, noted that regulatory friction surrounding AI infrastructure will intensify at the “subnational level” through to the end of 2028, with roughly 53% of hyperscaler pipeline growth concentrated in newly flipped governor states such as Texas, Georgia, Ohio and Pennsylvania now exposed to heightened slowdown risk.
“We flag the net effect on AI capex as a two-sided risk, where imposed moratoria and compressed project volumes could drag on 2028 activity starts lower, while a Democratic pivot towards state-wide bring-your-own-power mandates and unwound tax exemptions could instead lift the all-in cost per facility,” BMI analysts wrote. “Hence, the direction of our capex forecasts therefore hinges on how vigorously tighter legislation is pursued.”
As such, Roche warned, “the meltdown of the US AI model is set to accelerate, with the end of tax breaks and increased restrictions on data center construction.”
It’s concerning that Trump, Roche stressed, “will retain control of trade, and his maverick anti-globalization stance will continue. This is bad for China exports and technology access… A proposed summit of Xi, Putin and Trump would now be seen as impotent to divide the world à la Yalta. It would be seen as propping up a dying US leader. Xi is unlikely to want this. It’s a bad way for China to take its seat at the top table.”
A more restrictive US environment for data centers could create “incrementally more negative sentiment for AI infrastructure exposed names,” said Amit Daryanani, analyst at Evercore ISI.
JPMorgan strategist Michael Cembalest said that planned 2027 data center construction might not be notably affected, but 2028 could be a different story. “While pauses are the more impactful outcome,” he said, “conditions can be onerous: requiring data centers to pay grid costs to protect ratepayers, ending tax incentives, imposing water limits, setting requirements for onsite backup power, mandating labor requirements and banning non-disclosure agreements during permitting.”
Apollo Global Management is taking a more defensive approach to its AI bets. “We know that society will use dramatically more computing power in the future,” that demand for chips will remain strong, “and that AI capabilities are improving at an extraordinary rate,” said Apollo President Jim Zelter. “What we don’t know is how pricing and economics will evolve.”
Apollo CEO Marc Rowan added that “FOMO is not an investment strategy. We are prudent and we are cautious, especially in credit.”
Strategies at Jefferies noted that the most politically popular approach mirrors Pennsylvania Governor Josh Shapiro’s stance — permitting data centers conditionally with community involvement and price controls — which could help mute the backlash over time.
“Washington DC is in dispute,” said Richard Harris, Chief Executive Officer at Port Shelter Investment Management. “We have extreme left, extreme right and moderate left and right on the Hill. And an extreme individual in the White House. America is rudderless, no leadership, divided. How are we going to work our way out of a 2008-type market crisis?”
Fears that AI valuations are too rich only heighten the risks. “The AI bubble means that we’re still floating on a sea of liquidity, from AI money creation,” Harris said. “It’s the ‘Cappuccino Economy,’ all froth with the value way below.”
What’s more, markets “are increasingly fragile,” Harris said. “The AI boom looks like 1999; debt issues — not sub-prime lending but sub-hyper scaler lending — looks like 2008. Inflation everywhere — food, fuel, healthcare, housing — rates will go up.”
The economy here in South Korea may be especially in harm’s way. No major economy has hot-wired artificial intelligence into the center of its economic model faster or more ambitiously than Korea. That gambit is paying off fantastically for President Lee Jae Myung’s 16-month-old administration.
Until now, that is. Lee pledged before taking office in June 2025 to push the Kospi above 5,000, about double its level then, by fixing corporate governance and ending the “Korea discount.” Thanks to AI, the index got there without any significant legislation. In fact, the Kospi rose to 9,385 in June 2026.
Today, it’s struggling to maintain a 5-handle. The Kospi is now barely up 20% this year. This puts the broad Korean economy in harm’s way, given how reliant Korea’s $2.25 trillion economy has become on AI.
In October alone, shipments from Asia’s fourth-largest economy surged nearly 94% year on year to $115.28 billion. It was the biggest increase since 1974 and topped September’s rougher 84% gain.
These, of course, are the kinds of gains Korea and its fellow Asian Tigers posted 50-plus years ago. When a top-12 economy breaks records month after month, investors have reason to worry about sustainability, and what could happen if the AI boom goes bust.
This week’s seismic change in Washington greatly raises the stakes for Korea, Taiwan and other Asian economies that handed the steering wheel to AI.
The Democrats trounced President Donald Trump’s Republicans for a number of reasons, but a collective queasiness about the Trump administration’s hyper-laissez-faire approach to AI regulation was a big one.
Now, worries are growing about how an angry and cornered Trump might respond to realizing he’s already crossed into the lame-duck zone. “That dynamic will be heightened by the uncomfortable but unmistakable fact that Trump is losing coherence at the age of 80,” observed Ian Bremmer, CEO of Eurasia Group.
Bremmer added that “I can’t evaluate Trump’s mental state, but I can evaluate the political implications of the public perceiving him as having lost a step (with nearly half of the country already having thought Trump was experiencing cognitive decline earlier this year). Concerns over President Biden’s mental acuity led to a revolt in his party against him, ultimately sinking his reelection campaign. Trump can’t run for a third term – no matter what Steve Bannon says – but Republicans hoping to lead the party in 2028 and beyond can still desert him.”
To be sure, there’s still plenty of AI bullishness out there. But the worry is that the longer runaway investment in AI buildout continues apace, the more dangerous the bubble will be when it bursts.
“At some point in time, there’s going to be a downturn, and then things are going to break,” said Pacific Investment Management Co. CEO Emmanuel Roman, who reckons sustaining the AI boom will require about $2 trillion of financing annually over the next five years to fund capital spending by the industry.
When the music finally stops, South Korea will be Exhibit A of economies scrambling for a chair. “Exports will remain the economy’s main growth engine, supported by strong global demand for advanced chips tied to artificial intelligence investment,” said John Bromhead at Moody’s Analytics.
With “record semiconductor shipments encouraging firms to expand production capacity, facilities investment jumped 4.1% quarter-on-quarter, making its largest ever contribution to GDP growth,” said Bromhead.
“Intellectual property investment also strengthened. The risk is that growth stays heavily concentrated in the semiconductor sector, leaving South Korea exposed to a slowdown in global AI spending,” he added.
Bromhead noted that strong headline GDP has “masked weakness in household demand, with private consumption recording its sharpest contraction since early 2022. Private consumption fell 0.2% in the quarter, despite government measures cushioning households from higher living costs. Elevated energy prices squeezed purchasing power, while high borrowing costs and household debt limited discretionary spending.”
Without the jump in government consumption, the result would have been worse, Bromhead explained, adding: “We expect the recovery in household spending to be gradual, with fiscal support only partly offsetting the drag from inflation and tighter financial conditions. In other words, the two-speed economy will likely persist, with differences between external and domestic performances possibly even widening.”
Lee promised a Kospi at 5,000. He got it twice: once on the way up, and now on the way down. Now, as the bubble seems set to burst for US data centers, it’s hard to tell where Asia stocks will go from here, but the bottom could be a long way down.
Follow William Pesek on X at @WilliamPesek
Source: Iwpost.com













