Asia stocks crumble after AI rout rocks US markets

SINGAPORE, Nov 6 (Reuters) - Asia's tech-heavy markets sank on Friday as fear of increased regulatory scrutiny and a slowdown in AI build-out unleashed the steepest fall in US stocks since the tariff-triggered "Liberation Day" rout a year and a half ago.

South Korea's KOSPI plunged more than 8%, triggering exchange circuit breakers for a 20 minute trading halt while Japan's Nikkei was down 5%.

Wall Street's volatility "fear gauge" soared, the Nasdaq sank 5.5% and $3 trillion was wiped off S&P 500 companies, with investors worried Democrats, who swept to power at the midterm elections this week, will apply the brakes to the AI boom.

The political jitters are hitting an AI trade already on shaky footing due to worries about the return on investment for the enormous sums of money being poured into the technology.

Market participants see Asia's chipmakers and data centre equipment suppliers in South Korea, Taiwan and Japan as especially vulnerable and they had already tumbled on Wednesday and Thursday.

"It's pretty clear there's been a real shift in sentiment," said Michael McCarthy, chief executive for Australia and New Zealand at online brokerage Moomoo.

"Market turning points are often accompanied by strong disagreement, and that shows up in the market by huge swings in either direction," he said. "That's what we appear to have had — and last night's emphatic sell-down suggests that is the direction that we're now headed in."

The selling indicates investors are starting to factor in increased local opposition to building data centres, with analysts saying markets have yet to fully consider the cost such building has imposed on communities.

The Philadelphia Semiconductor Index slumped 12.2% overnight and the Nasdaq, which reversed an initial swing higher after the midterms before dropping, has now shed 12% from its record high close a month ago.

Bonds were poised to gain in Asia, while the US dollar slipped against haven currencies such as the yen and Swiss franc.

"Treasuries can probably rally a lot further," said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. "And I suspect it will be an ugly day for semiconductor and memory (stocks)."

(Reporting by Tom Westbrook and Ankur Banerjee; Editing by Sam Holmes and Christopher Cushing)