Hi, gamers. I have some bad news. The global economy seems to be having a bit of a hard time, with markets around the world sliding into the red. It’s lacking the aura, as the kids say. Wall Street has lost a lot of its sparkle. As a video game site, this may not be news to you, but it is true. Stock valuations of companies like Nintendo, Sega, and Capcom have dropped as a result of this historic crash. This article will explore the reasons for this, from a video game perspective, ahead of what could be the start of a global recession.
Let’s start with Japan, with Capcom and Nintendo. Both companies were doing pretty well before today’s event! Nintendo is about to release the Switch 2, and should be pretty comfortable right now. Meanwhile, Capcom has been on a winning streak with its recent games, and its stock price has risen sharply as a result. The yen may have been weak in recent years, but even so, it’s showing signs of improvement. All of this makes me think that now is a great time to be a game developer in Japan – Kenzo Tsujimoto should be drinking champagne in the penthouse suite.
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But he certainly wasn’t today. Capcom’s stock is down about 16%, Nintendo’s down 15%, Sega’s down 13%, Nexon’s down 13%… and so on. No matter how well the video game companies are doing, it’s been badly hit. That’s because the problem isn’t with the Japanese video game industry, it’s with the Japanese stock market itself! You see the onion of a recession – layers upon layers. As of market close, Japan’s Nikkei index – which can be thought of as a single indicator of overall market health – was down over 12%. It’s worth noting that a stronger yen may actually hurt the market here because of the rising interest rates that come with it. This was the biggest drop in the Nikkei since 1987 – bad news!
But it’s even worse than that! This isn’t even a problem unique to Japan, as there’s another layer to the onion that covers much of Asia. South Korea was also hit hard, with its biggest drop since 2008 (you may have heard that the global financial crisis was caused by the greed of big banks). Things got so bad that the Korean market triggered a circuit breaker — a 20-minute trading halt when valuations fall below a certain milestone.
All of Asia felt the brunt of this sudden financial collapse, but why? Well, it’s a bit of America’s fault! You see, countries are financial islands that operate independently of each other. Many times, they are directly affected by how each other is doing. When financially interconnected countries do well, a rising tide can indeed lift all boats. But the reverse is also true, a downturn in one country can have a knock-on effect on the countries that depend on it. Look at the Eurozone crisis in 2009, when Greece’s corruption and financial stupidity nearly sank the rest of the Eurozone. In video game terms, imagine taking a spot in Counter-Strike, but the idiot occupying the middle spot keeps getting dunked on. It’s hard to win rounds when one of your team is a bit of a drug addict. A US stock market crash means everyone who trades in or uses the US dollar will crash, and guess what, the US dollar is very popular in global markets.
What specifically relates to Asian stock markets right now is that the U.S. economy seems to be edging ever closer to an official recession. Recent data has shown that markets are underperforming, which in turn has spooked investors, who have responded accordingly, pulling money out to hedge against the risk of a financial disaster. Interestingly, because of the way stocks and markets work, this has led to a financial disaster in itself, and U.S. stocks have fallen as a result. Investors have pulled out of areas they deem risky, and the biggest loser this time around has been the tech sector. As it happens, tech is one of the largest markets in the region — it includes hardware, software, and even video games.
As for why the tech sector has been hit hard? It’s because the U.S. market has been very bullish on the tech sector. People have invested a lot of money in tech companies that are driving advances like AI and the Metaverse, and these companies have lost a lot of money. Think about it: billions of dollars have been invested in AI projects like OpenAI, but how do these companies actually make money? How do they generate revenue? They don’t. Recent transactions in the tech sector are more about building financial stakes in technology, Can It turns out that these companies are profitable, but not profitable. With a recession looming in the U.S., sentiment toward such investments has plummeted. If you want a perfect example of how the U.S. tech sector is faring, Intel’s CEO tweeted a quote from Christian scripture after the company’s stock price fell more than 50%.
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For League of Legends players, think of it this way. Buying Mejai in League of Legends when you’re at 1/0/0 might be bold, but selling it might be a good idea when you’re at 1/7/0 10 minutes later. When things look bad, you abandon ambitious bets and hide. Remember when Sony invested about $1 billion in Epic for the Metaverse project? How much money did they make from it? Will they make it back? Probably not!
The widespread panic selling of tech stocks meant that the tech sector (both US and global) bore the brunt of the pain. Add to that the usual global declines that occur when US markets decline, and the combination frankly left Japan (and profitable and successful companies like Capcom and Nintendo) in the dust. Finally, we’re finally seeing the surface of this financial onion, complete with a giant AI-generated American flag.
What does this mean for you? Okay, I know you love video games. I write about video games, but by no means am I here to give financial advice. But even so, I’d probably hold off on buying any cosmetics or battle passes for now, and maybe set some money aside. If you’ve always wanted to try a free-to-play game, now might be a good time!
