The Democrat’s blue tsunami turned stock markets red across the world, says MAGGIE PAGANO

Wall Street’s fear index, the VIX gauge, had an incredibly hairy day yesterday after the Democrat’s blue tsunami turned stock markets red across the world – from London to Busan.

The VIX, which measures real-time expected volatility of the influential S&P 500 index, has now shot up 70 per cent following the Democrat’s midterm election victory which triggered one of worst day’s trading on US stock markets on Thursday.

However, many of the big tech stocks –the worst affected by any downturn in AI or data centre spending because the Democrats are likely to come down on them heavily with regulation – had recovered some of their biggest falls by yesterday’s opening.

Even so, US traders reported one of the biggest swings in mood for months, with retail investors selling a net $338million of individual US stocks on Thursday alone, thought to be the largest one day sell-off since the Covid crash in March 2020. 

The all-important Philadelphia chip index lost 12 per cent, the second-biggest fall in history.

Wall Street’s rout spread fast around the world, sending share prices plunging across Asian markets first and then European exchanges.

By the close of play last night, the FTSE 100 had recovered some of its falls, closing down 109 points at 10,674.

But it was the tech-heavy Asian markets which suffered the most, particularly the South Korean stock market where the Kospi index fell by 8 per cent in early deals yesterday, triggering a circuit breaker and a halt to trading because of the threat of a wave of margin calls.

Shares in two of the biggest chip companies, Samsung Electronics and SK Hynix, plummeted on fears that spending will be slashed as they are two of the biggest suppliers to AI buildout.

Indeed, the South Korean government is so worried by the market’s volatility that it has introduced emergency measures starting this Monday to allow brokers to waive margin-loan collateral for investors for three months to prevent any forced selling and calm the panic.

The problem is particularly acute because a large number of South Korean retail investors have been borrowing money to pile into shares – but now face being caught out by plunging prices.

It’s too early to know whether the nervous Busan exchange officials may prove to be the canaries in the coal mine, and the sign that the AI tech bubble really is over-inflated enough to be pricked.

Or to burst: In a sign of the AI frenzy, Anthropic, creator of the Claude AI assistant, was said to be valued at $2trillion. 

That price is now being slashed after this week’s rout while the tech giant is said to be delaying its IPO roadshow next week because of the pessimistic mood.

What is certain is that there are growing questions about what happens next in the AI revolution.

Can the existing tech titans such as Nvidia, Microsoft and Google make the profit they promise? And, if not, how will they deal with the $3trillion of debt they have borrowed to fund their AI development?

Hedge fund tycoon Paul Singer, of Elliott Management, was ahead of the curve with his chilling warning which came on the day of the midterms – that the combination of the hype around AI, rising inflation and the US budget deficit could trigger a bear market. We shall see.