With the U.S. midterm election counting underway, there is a high possibility that the Democratic Party will secure control of the Senate and House of Representatives. The analysis is that the deadlock between Congress and the executive branch after the election could have a positive effect on the financial market by limiting new regulations and tax increases.
It was also pointed out that Korea should keep an eye on the slowdown in demand for semiconductors due to U.S. data center regulations and the possibility of a congressional review of the investment agreement with the United States.
Tom Orlik, chief economist at Bloomberg Economics, diagnosed that there is a high possibility of a positive election result for the Democratic Party based on early signs of vote counting and betting market forecasts at the '2026 U.S. Midterm Election and Macro Forecast Webinar' hosted by the Korea Financial Investment Association on the 4th.
He explained that in the betting market, the probability of the Democratic Party taking control of the House of Representatives was over 90%, and the probability of taking control of the Senate was over 70%.
Regarding Korea, it was believed that the U.S. state government's data center construction regulations could be a variable in the semiconductor industry. Voters' concerns about rising electricity and water rates could lead to restrictions on construction.
If Democrats control Congress, governors in the states where data centers are being built would have the power to influence the pace of construction, he explained. He added that this could pose a risk to future orders and profitability rather than existing orders for Korean semiconductors.
Bloomberg's Dr. Hyosung Kwon, who participated in the Q&A, predicted that even if new data center construction becomes difficult, existing investments will be relatively solid as it is unlikely that projects already under construction will be affected.
Chief Orlik basically believed that the AI revolution and capital investment would continue.
However, assuming a scenario in which U.S. stock prices fall 20%, credit spreads widen, and data center capital spending is halted for a year, Korea and Taiwan, the biggest beneficiaries of the AI boom, could suffer the most damage.
It was predicted that the Democratic Party's control of Congress could also affect Korean companies' investment agreements in the United States. As the Democratic Party focuses on keeping the administration in check, it can strictly review the U.S. government's acquisition of shares in private companies and investment agreements with foreign companies.
However, it was not expected that the midterm elections would lead to stronger tariff measures. Dr. Kwon also predicted that although it would be difficult to further strengthen trade policy, the pressure on Korean and Taiwanese semiconductor companies to expand their investment in the United States will remain. He added that a large current account surplus centered on semiconductors could also be a factor of pressure.
Chief Orlik explained that the rapid adjustment in the Korean market reflected leverage issues and changes in perspectives on AI investment. It was believed that the fact that foreign investors who made profits in the first half of the year took some of their funds to the United States also had an impact on the decline in the Korean market in the second half of the year.
He emphasized that the Iran war and AI asset prices are important to the U.S. Federal Reserve's (Fed) policy and dollar outlook.
If the oil price rises to $120-130 per barrel and AI assets are solid, an interest rate hike is expected in December and next year, and if the oil price falls to $60-70 and the AI market is solid, a freeze is expected.
He explained that in the long term, the growing retirement population and the decline in savings flowing into the U.S. support high interest rates.
Dr. Kwon diagnosed that if the U.S. Treasury interest rate rises, Korea's long-term interest rates will also be affected, but the increase may not be large due to the re-evaluation of Korea's nominal growth rate and financial soundness.
He went on to say that if AI-related investment flows continue and U.S. interest rates do not rise further, there is a possibility that funds will flow back into Asia.
