economy
AI credit markets at risk of 'violent' correction and investors must stay clear-eyed, Man Group says
AI credit markets are at risk of a 'violent' correction and investors must stay clear-eyed to do well, Man Group says
TL;DR
- Rapid increase in bond issuance by AI and hyperscaler companies requires vigilance in investment choices.
- Public market credit investors in AI face execution risk and buildout delays without equity upside.
- Concerns exist about issuance in high-yield and leveraged loan markets with free-cash-flow negative borrowers.
- Rigorous credit selection and diversified portfolios are recommended.
- European, emerging-market credit, Japan, and Hong Kong are identified as potential diversification areas.
- Selectivity is needed for China and Indonesia due to compressed spreads and commodity sensitivity.
- Emerging-market currencies are moderately constructive, but risks include extended speculative positioning and a hawkish Federal Reserve.