After the U.S. midterm elections, Asia-Pacific faces a major AI test, while falling oil prices bring a glimmer of hope.

Title context: After the U.S. midterm elections, Asia-Pacific faces a major AI test, while falling oil prices bring a glimmer of hope. Text: The Democratic Party retook both chambers of Congress in the U.S. midterm elections and achieved electoral breakthroughs in key data-center construction states, prompting markets to reassess the speed and cost of AI infrastructure expansion. For ASIA FINANCIAL markets, this policy reassessment appears to have two sidesnamely, if U.S. data-center investment slows, it could weaken demand for chips, servers and supporting equipment, hitting North Asian exports and corporate profits; at the same time, markets are betting that falling oil prices brought about by the de-escalation of the Iran war could ease inflation, trade deficits and fiscal pressure in energy-importing countries. The core change facing ACR HOLDINGS can be described as a rebalancing between AI export gains and energy import costs. Markets first experienced divergence, then shifted to broad selling. On Wednesday, Microsoft, Amazon, Alphabet and Meta rose 6.7%, 6.1%, 3.2% and 1.4%, respectively, as global funds bet that a slower pace of expansion could ease capital expenditure pressure and increase the value of existing computing power; the Philadelphia Semiconductor Index, however, fell 3.13%. It was observed, however, that on Thursday, after the Democrats swept the Senate and House and won midterm elections in important Republican states such as Texas, a combination of major uncertainty over data-center approvals and regulation and weakness in Qualcomm's mobile chip business spread the selloff to technology platforms: the Nasdaq 100 Index, known as the "global tech stock bellwether," plunged 6.36%the largest single-day percentage drop since March 2020while the Philadelphia Semiconductor Index plummeted 12.25%, and the technology giants that had previously risen also broadly turned lower. The market began simultaneously lowering growth expectations for AI computing hardware suppliers and the valuation tolerance of the entire AI sector, including technology giants such as Amazon, Google, Microsoft and Meta. In Asian markets on Friday, the sharp shock to AI data centers triggered by this policy expectation further transmitted to Asia. South Korea's KOSPI benchmark index at one point fell about 8.8% intraday, breaking below the 5,000-point threshold proposed by South Korean President Lee Jae-myung during his election campaign and triggering a 20-minute circuit breaker; the decline then narrowed and it ultimately closed at 5,059.69 points, down 6.02%, rather than losing the 5,000 level at the close. Japan's Nikkei 225 closed down 5.96%, and Taiwan's weighted index closed down 4.51%. These markets' heavy dependence on AI hardware exports quickly translated changes in the U.S. construction pace into earnings expectations and share-price pressure. From chip orders to crude oil bills, is Asia's growth resilience being reordered? The transmission chain of an AI investment slowdown is that delayed data-center deliveries affect equipment procurement, which in turn lowers orders for chips, storage, networking and power equipment, and may weaken supply-chain prices and profit margins. South Korea and the Chinese market can be described as directly exposed to this chain; similar to South Korea's economy, where memory chip exports account for an important share of GDP, the latter also faces the risk of a cooling in high-tech exportsnet exports contributed nearly 40% of economic growth in the third quarter, and computers and chips contributed 40% of the increase in exports so far this year. In addition, although hardware products related to AI infrastructure are expected to circulate first within Asian supply chains, that does not mean their final demand is independent of U.S. data-center investment. In the view of global investors, South Korea and China are at the forefront of the transmission of potential U.S. trillion-dollar-scale AI data-center construction and investment into Asian exports. Although a considerable portion of the export-focused high-performance chips and memory products in China and South Korea, as well as key AI infrastructure components such as PCB\MLCC\packaging substrates\electronics, first circulate within Asian supply chains or in AI data-center construction in the Asia-Pacific region, U.S. data centers remain the largest source of end demand, so a slower U.S. construction pace may significantly affect exports and corporate profits in both places through purchase orders and product prices. Falling oil prices, meanwhile, provide a buffer by lowering import bills, energy subsidies and corporate input costs. India relies on imports for nearly 90% of its crude oil and is also more on the AI hardware import side, so it is more likely than Northeast Asia to benefit from lower energy and equipment costs. Indonesia and the Philippines are also expected to see fiscal or inflation improvement. However, India's IT services still depend on global corporate technology budgets. Frederic Neumann, HSBC's chief Asia economist, noted that other parts of Asia may take over some U.S. data-center demand. Therefore, judgments on Asia's technology investment may need to be further differentiated: as the Democratic Party controls both chambers of the U.S. Congress, the U.S. AI data-center construction process may slow significantly, which will undoubtedly hit Asia's AI infrastructure-related supply chains; however, as technology giants such as Google, Amazon and Microsoft actively shift AI data-center projects to Asia, and Asian tech leaders such as Tencent and Alibaba may also accelerate AI data-center construction, this could strengthen demand for a considerable portion of semiconductors and power equipment and increase the value of local power supply and data-center resources. This is also why some Wall Street analysts believe that Asian technology and power investment needs to further distinguish between a global demand slowdown and adjustments in construction layout. Policy uncertainty after the U.S. midterm elections may lengthen data-center approvals, power grid connection and construction cycles; if project delays further slow global equipment procurement, export and earnings expectations for related supply chains in South Korea, China's Taiwan region and mainland China will come under pressure. But restricted U.S. expansion may also prompt hyperscale cloud providers such as Google, Amazon and Microsoft to accelerate their Asian layout. The latest research report from Wall Street financial giant Morgan Stanley shows that the roughly 15GW of potential spillover demand originally expected to be absorbed by Asia by 2030 may be realized earlier as local data-center utilization rises. Together with the AI construction needs of Asian cloud providers such as Alibaba and Tencent, this constitutes a source of regional growth, is expected to support some semiconductor, power equipment and energy storage orders, and increases the value of reliable power sources, deliverable grid-connected capacity and data-center resources. The Morgan Stanley analyst team especially emphasized that tightening power supply and demand may shift bargaining power to generators and grid operators, so equipment demand growth and improved profitability of power assets need to be judged separately. Morgan Stanley expects Asia's data-center electricity demand to grow at a compound annual rate of about 27% from 2025 to 2030, reaching about 960 terawatt-hours in 2030, of which AI data centers will contribute about 558 terawatt-hours. In Morgan Stanley's view, the obstruction of some U.S. projects does not mean global AI computing demand disappears, but may prompt some computing demand originally planned for the United States to shift to the Asia-Pacific region. Compared with some major U.S. data-center construction hubs, some markets in the Asia-Pacific region may have efficiency advantages in project approval and actual construction. If cloud computing giants such as Google and Amazon therefore accelerate their data-center layout in the Asia-Pacific region, demand in Asian markets for reliable power, grid access and energy storage equipment is also expected to grow accordingly. In other words, Asian data-center power-chain companies, after being affected by negative sentiment from the U.S. AI trade and seeing short-term share-price declines, may instead usher in new positioning opportunities. At the same time, falling oil prices provide another layer of buffer for Asian growth by reducing energy import spending, corporate input costs and fiscal subsidy burdens. Economies such as India, Indonesia and the Philippines are relatively less dependent on AI hardware exports, so the benefits of lower energy costs are more prominent; Northeast Asian economies need to find a balance between pressure on export orders and improved import costs. ACR HOLDINGS' divergence will increasingly depend on exposure to U.S. end demand, the actual ability to absorb additional computing power, and how much of the decline in energy costs can be converted into profit and purchasing-power improvement. Asian markets face a post-election AI super test, but falling oil prices bring a glimmer of hope If the U.S. election ultimately cools the AI boom, Asia's export powerhouses may suffer a heavy blow. However, for this region that drives global economic growth, the news is not all bad. On Friday, the market selloff that spread from the United States to Asia triggered a circuit breaker in Seoul's stock market and pushed Tokyo and Taipei into bear markets, reflecting concerns that Washington will put the brakes on data-center construction. This will cool demand for chips and other electronics that had previously driven record trade surpluses. China faces the risk of losing part of its high-tech exports, which have been supporting the economy. Other economies such as South Korea have even greater exposure. As shown in the chart above, the AI trade has pushed trade imbalances to record levelsespecially the strong Northeast Asian trading economies, which all recorded huge surpluses. However, the crushing defeat suffered by President Trump's Republican Party in this week's midterm elections may bring more changes to the world economy than that. Trump's war against Iran was unpopular with U.S. voters and also triggered another powerful force shaping economies this year: soaring energy costs. Asia's major economies are all energy importers and therefore suffered a direct shock. Countries such as India and Indonesia are under pressure on their external balances and local currency exchange rates. As markets anticipate de-escalation of the conflict, Brent crude fell 15% this week, bringing relief. Frederic Neumann, HSBC HOLDINGS' chief Asia economist, said the fading of the AI trade boom "will have knock-on effects across Asian economies." "Slower demand for everything from chips and cables to cooling systems and power conversion equipment will inevitably drag on export growth." On the other hand, "lower energy prices will largely cushion the pressure on Asia's economic growth." Of course, U.S. voters' desire for the war to end does not guarantee that the U.S.-Iran war will end. There is also currently a lack of clear answers on how a Democratic-led Congress and state governments will regulate AI. Trump still controls trade policy tools such as tariffs; during his second term, these tools have been another important factor disturbing Asian economies. Below is a summary of some key issues that the U.S. election brings to Asia and the Pacific region's most major economies. China Net exports contributed nearly 40% of China's third-quarter economic growth, the highest level since early 2025, with high-tech products playing a leading role. A recent study published by Bloomberg Intelligence pointed out that if U.S. AI development slows, China will face "relatively severe economic headwinds," while falling computer hardware prices may squeeze profit margins across the supply chain. As shown in the chart above, the AI boom has driven China's export growth in 2026computers and chips contributed 40% of the increase in exports so far this year. China is also highly dependent on imported energy. China has used its huge reserves to buffer this year's price shock, but profits in industries such as textiles that use petroleum products as production inputs have still been hit. Two summits are planned in the coming weeks, through which China's leaders will get an early look at post-midterm Trump. Because China has leverage in rare earths, the current trade truce arrangement may not be easily affected by political changes in Washington. More worrying is the domestic situation: insufficient household consumption has made economic growth rely on AI and other trade. A Bloomberg Intelligence study wrote: "Rising risks make it more urgent for Beijing to strengthen support for domestic consumption and promote rebalancing of economic growth." Japan Japan has a large number of companies with interests tied to the U.S. AI industry, and its stock market suffered a heavy blow on Friday. However, the Iran war and repeated changes in tariff policy will also be key factors affecting Japan's economy. Automakers contribute a quarter of Japan's exports to the United States. Under the agreement reached with Trump, Japanese cars are subject to a 15% tariff, while Tokyo has also pledged to invest billions of dollars in the United States. This resource-poor economy, which usually buys large amounts of Middle Eastern oil, has also been forced to turn to other regions for oil sources. The latest monthly data show that Japan's oil imports from the United States increased by more than 800%. Takahide Kiuchi, executive economist at the Nomura Research Institute in Tokyo, said: "If tariff policy and hardline policy toward Iran are constrained to some extent, the deterioration of Japan's export environment will stop there." However, he believes there is a short-term risk: before the new Congress convenes on January 3, the United States may instead escalate actions on both fronts. India Asia's third-largest economy is also the world's third-largest oil importer, relying on overseas purchases for nearly 90% of its crude oil demand. Rising oil prices have put pressure on government finances, pushed up import spending and widened the trade deficit, all of which have weighed on the rupee. The rupee is one of the worst-performing major currencies this year. In addition, unlike many Asian economies, India is on the import side of the AI trade, which is one reason its stock market became something of a safe haven during this week's decline. Costs for Indian IT service providers may fall. Even so, economists caution that this key industry remains vulnerable to a slowdown in global corporate technology spending, and India will ultimately still need to catch up in AI. OCBC economist Lavanya Venkateswaran said lower oil prices will "alleviate one of India's major macroeconomic vulnerabilities" and increase household purchasing power. But "if corporate technology spending really slows, it could compress discretionary IT budgets and thus drag on India's services exports." South Korea and China's Taiwan South Korea and China's Taiwan are the two economies at the forefront, supplying the highest-capacity chips and memory products and having achieved extraordinary export growth. A large portion of these products first goes to other destinations and circulates through complex supply chain networks, but the largest end user is the U.S. data-center industry. As shown in the chart above, over the past year, the AI boom has driven a sharp rise in Asian exportssome AI infrastructure-related products from the Asian region are sold directly to the United States, but many products generally are first exported to other Asian economies. An important analysis report by Bloomberg Intelligence found that if the AI bubble bursts, growth in these two Asian economies will suffer a rapid and severe shock, far exceeding other regions. HSBC's Neumann said that if the United States decides to slow data-center construction, other Asian countries may take over some demand, creating a potential buffer. ASEAN Indonesia, Southeast Asia's largest economy, has not benefited much from the AI export boom, and the Philippines has benefited even less. Lower oil prices will free up much-needed fiscal space for Indonesia, where energy subsidies have increased by more than 50%; they will also ease some inflation pressure in the Philippines, where inflation has soared to nearly 8%. However, for chip-producing countries such as Singapore and Malaysia, a pullback in AI investment will weaken their growth momentum. Hardware exports and data-center construction have been key factors offsetting the oil price shock and driving economic growth this year. The central banks of both countries resisted calls for tighter monetary policy at their recent policy meetings, decisions that may prove prescient later. Australia Australia itself is also an important data-center construction market. As companies such as Anthropic seek to participate, the industry has driven investment growth and may also trigger a political backlash similar to that in the United States. However, increased imports of chips and servers, combined with rising energy prices, have compressed Australia's trade surplus this year to the lowest level in a decade. Lower energy prices will help reverse this situation while also easing food price pressures; these pressures had previously pushed the Reserve Bank of Australia to become one of the most aggressive central banks in raising rates globally this year.