Japanese equities sank amid indications of Democratic gains in Tuesday's midterm elections, a scenario strategists say would weigh on AI stocks. The tech-heavy Nikkei 225 declined as much as 4.8%, with chip and AI-related shares from memory maker Kioxia Holdings Corp to MLCC maker Taiyo Yuden Co. slumping more than 13% and among the worst performers. The broader Topix index fell as much as 3.5%.
Global equity markets have already begun pricing in the view that a Democratic advantage would create headwinds for AI-related stocks, said Masahiro Yamaguchi, head of investment research at SMBC Trust Bank. In Japan, where markets were closed yesterday, there appears to be some delayed unwinding of AI-related positions following similar moves in overseas markets. Tokyo's markets were shut for a holiday on Tuesday.
Wednesday's selloff sent the Nikkei 225 below its 200-day moving average for the first time since June 2025. The gauge is down almost 17% from its all-time high reached in June, making it one of the worst performers among major markets for the period. Tech shares had already been hit hard before the early results of the US midterm vote, amid mounting concerns over the sustainability of the AI-stock rally that had supported the bull market.
Chip-related companies such as Kioxia and Screen Holdings Co. are down more than 50% each since the end of June. It is the AI theme which is the main driver of markets today, with worries over the sector's prospects continuing to build, said Frederic Neumann, chief Asia economist at HSBC Holdings Plc. With the election results from the US trickling in, investors in Asia are also reluctant to add to risk, waiting for a clearer picture on the direction of US politics.
Polls have closed across much of the US, with Democrats securing an early win in their effort to take back the Senate. Kalshi is pricing roughly a 99% probability of Democrats taking the House of Representatives and a similar chance of winning the Senate, pointing to a sweep of both chambers. A Democratic sweep of both chambers of Congress would likely bring greater scrutiny of the AI industry and data-center buildout, strategists have said, with issues including AI safety, data-center development and power costs becoming increasingly politicized.
A Democratic win would likely put some brakes on AI-related investment, he added. Shares of Mitsui Chemicals slumped as much as 14% after Reuters reported the government-backed Japan Investment Corp. is in talks to sell chipmaking materials maker JSR Corp. to the company.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing