AI Trade Cracks as Midterm Sweep Spooks Global Markets

Markets are wobbling, and the AI boom is the reason. Seoul halted trading right after Friday's open when stocks plunged 8%, and Tokyo slumped more than 6%. That followed a brutal Thursday in the US, where a major benchmark fell 5.5% — its biggest drop since the tariff-triggered 'Liberation Day' rout of 2025.

The trigger, per Reuters: investors are betting a Democratic sweep at the midterms brings regulation and a spending pullback for the AI buildout that has been driving US growth and computer-component supply chains worldwide. Michael McCarthy, CEO of Moomoo Australia and NZ in Sydney, called it a genuine shift in sentiment. Turning points usually come with loud disagreement, he said, and the wild swings plus Thursday's emphatic selloff suggest that's where things are headed. His read on the big US players: they've declared 'the music has stopped.'

Mark Fuchs, CIO at Fuchs Capital Partners in Singapore, pointed to the Democrats' more circumspect view on data centers and AI. Higher bars on data center projects would likely mean a broad reduction in spending, he said, with Asia tech getting repriced lower on expectations of more constrained demand.

Fuchs added a caveat that predates politics: this sector had already been sliding for well over a month, with markets also pricing a higher cost of capital since the Fed started raising rates in September. Strip out the new data center constraint, and the downtrend was already in motion.

So where does the money go? Fuchs said he's favoring non-AI sectors and countries with higher nominal GDP and durable domestic growth stories — domestic India among them — while hedging currency and index exposure. Whether this is the real turning point or a violent shakeout, the AI trade is taking the punches.

For now, all eyes stay on Asia's reopen and whether Wall Street's next session confirms what McCarthy suspects: the music has stopped.