A dramatic sell-off in US technology shares sent shockwaves through global markets last week. The rout, triggered by shifting political landscapes and investor anxiety over the AI boom, quickly spread to Asia, raising critical questions for investors.
What Sparked the US Sell-Off?
The steep decline in US tech stocks, particularly on Thursday, November 5, saw the Nasdaq plunge in its worst single-day performance since 2020. More than $2.5 trillion was wiped from the value of the tech-heavy index. The primary trigger was the result of the US midterm elections, where the Democratic party's strong performance fuelled investor fears of tighter regulations. Specifically, concerns mounted over a potential slowdown in the construction of energy-intensive data centres, which are crucial for the expansion of artificial intelligence. This political uncertainty hit an AI sector already on shaky ground, with some investors questioning the massive capital expenditure required and the timeline for returns. The sell-off was brutal for semiconductor firms, with the Philadelphia Semiconductor Index falling over 12%. Major players like Nvidia, AMD, and Micron Technology saw their shares tumble significantly.
How the Contagion Spread to Asia
The shockwaves from Wall Street hit Asian markets with full force on Friday, November 6. In a clear sign of panic, South Korea's KOSPI index plunged as much as 9%, triggering a temporary trading halt. Japan's Nikkei 225 fell nearly 6%, while Taiwan's main index also dropped sharply. This rapid transmission is a stark reminder of the interconnectedness of global financial markets. When US markets sneeze, Asian markets, particularly those with a heavy concentration of technology and manufacturing firms, often catch a cold. The mechanism is twofold: first, a direct supply chain link, as many Asian companies are suppliers to US tech giants. Second, a shift in global investor sentiment, where a 'risk-off' mood in the US prompts investors to pull money from what they perceive as riskier assets in emerging markets.
Asian Tech Giants Under Pressure
The pain was most acute for Asia's own technology titans, especially those in the semiconductor industry. These companies are the engine room of the global AI boom, manufacturing the chips and components that power everything from smartphones to data centres. South Korea's Samsung Electronics and SK Hynix, both major memory chip makers, saw their stocks fall sharply on concerns that a US slowdown would directly impact demand. Similarly, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker and a key supplier to Apple and Nvidia, experienced a significant drop. In Japan, AI investor SoftBank Group also saw its shares slide, reflecting the broad-based fear that the AI investment landscape was facing a major reassessment.
A Different Story for Indian Markets?
Interestingly, while most of Asia followed the US downward, Indian markets showed surprising resilience. On Friday, November 6, as other regional indices bled, India's Sensex and Nifty benchmarks rallied. Part of this divergence was attributed to strong foreign portfolio investor (FPI) inflows. India's lower direct exposure to the highnd AI hardware and semiconductor manufacturing sector, which was at the epicentre of the selloff, may have insulated it to a degree. However, Indian IT services companies like TCS and Infosys did see some initial weakness. These firms derive a substantial portion of their revenue from North American clients, and any sign of a slowdown in US tech spending is a cause for concern. While the sector faces questions about future client budgets, the broader Indian market appeared to be viewed as a relative safe haven amid the global turmoil.
