Asian Markets Buckle as AI Capex Jitters and Circuit Breakers Signal a New Era of Volatility

If you needed a reminder that the global risk trade is built on a foundation of sand, look no further than Asia’s latest market convulsion. The region’s equity markets, once the poster child for AI-driven optimism, are now ground zero for a full-blown sentiment reversal. South Korea’s main exchange was forced to halt trading after benchmark indexes went haywire, and the mood across Asia is one of deepening anxiety. The culprit? A toxic cocktail of runaway AI capex plans, a hawkish Fed nomination, and the realization that the AI boom is not a free lunch.

Let’s rewind. For the better part of two years, Asian equities, especially in South Korea and Taiwan, have surfed the AI wave with reckless abandon. Chipmakers, cloud infrastructure plays, and anything with ‘AI’ in the prospectus have been bid up to nosebleed valuations. But the latest round of capex announcements from the region’s tech giants has traders doing a double take. The numbers are eye-watering, the debt loads are rising, and the market is finally asking: who’s going to pay for all this? (wsj.com, 2026-02-05)

The selloff started in earnest as news of Kevin Warsh’s Fed chair nomination hit the wires. Warsh’s hawkish reputation poured gasoline on a market already nervous about AI spending. By the time Asian desks opened, the pain was palpable. South Korea’s KOSPI plunged, triggering a circuit breaker. Taiwan’s TAIEX followed suit, with chip stocks leading the rout. The AI capex narrative, once a source of comfort, is now a source of fear. Traders are realizing that capital isn’t free anymore, and the days of zero-rate-fueled expansion are over.

The numbers tell the story. South Korea’s main index dropped over 4% in a single session, the biggest one-day move since the 2022 inflation panic. Taiwan’s chip sector lost $80 billion in market cap in less than 24 hours. The pain wasn’t contained to Asia. US tech stocks, already reeling from software sector woes, took another leg down. The XLK ETF is flatlining at $135.6, and the AI trade is officially on life support.

The macro backdrop is equally grim. China’s PMI data is soft, Japan’s consumer confidence is wobbling, and Australia’s GDP print is due soon. The risk-off move is global, but Asia is feeling it first and hardest. Cross-asset flows are telling: money is rotating out of high-beta tech and into cash, utilities, and energy. The AI capex boom, once the engine of growth, is now a millstone around the market’s neck.

What’s changed? The market is waking up to the reality that AI isn’t a magic bullet. The capex required to build the next generation of AI infrastructure is massive, and the returns are uncertain. Debt levels are rising, margins are compressing, and investors are no longer willing to pay any price for growth. The Warsh nomination is the catalyst, but the underlying problem is structural: the AI trade has become a crowded, over-leveraged bet.

The historical analog is instructive. In 2000, it was dot-com data centers. In 2022, it was cloud and AI. The difference this time is that the debt is bigger, the valuations are higher, and the margin for error is smaller. Asian markets are the canary in the coal mine, and the message is clear: the easy money era is over.

Strykr Watch

South Korea’s KOSPI is clinging to support at 2,400. A break below that level opens the door to 2,200. Taiwan’s TAIEX is testing 17,000, with 16,500 as the next line in the sand. The XLK ETF is stuck at $135.6, unable to reclaim its 50-day moving average. The AI trade is unwinding, and the technicals are ugly. RSI readings are oversold, but there’s no sign of a bottom yet. Credit spreads in Asia are widening, particularly in tech and chipmaker debt. The risk is that forced selling accelerates if support levels break.

The volatility is off the charts. Circuit breakers are being hit, and liquidity is drying up. For traders, this is both a warning and an opportunity. The next move will be violent, and positioning is everything.

The risks here are obvious. If AI capex plans continue to balloon, debt levels could become unsustainable. A disorderly unwind in Asian tech could spill over into global markets, particularly if forced selling triggers margin calls. The Warsh nomination adds another layer of uncertainty, as higher rates make financing more expensive. If support levels break, the next leg down could be brutal.

But there are opportunities, too. For traders with a contrarian streak, this is the kind of panic that creates asymmetric risk-reward setups. Fading capitulation at key support levels, rotating into defensives, and shorting over-leveraged tech are all on the table. The AI trade isn’t dead, but it’s no longer a one-way bet.

Strykr Take

Asia’s AI hangover is the market’s reality check. The days of free money and infinite growth are over, and the market is finally pricing in the risks. For traders, this is a time to be selective, nimble, and ruthless. The next few weeks will be volatile, but volatility is the friend of the prepared. Don’t chase yesterday’s winners. Look for value where others see only pain. The AI trade will survive, but only after the excess is wrung out.