AI credit markets at risk of ‘violent’ correction, Man Group says
The rapid increase in bond issuance by artificial intelligence and hyperscaler companies will require strong vigilance around investment choices, according to fund firm Man Group . “Public market credit investors in the AI space face an uncomfortable asymmetry: they bear meaningful exposure to execution risk and buildout delays, yet receive none of the equity upside if the boom plays out as bulls expect,” strategists at Man Group said in an outlook for the second half of 2026. “That mispricing of risk is coiling a spring: the greater the enthusiasm today, the more violent the eventual correction is likely to be.” They said they’re “particularly concerned about issuance in the high yield and leveraged loan markets, where many borrowers remain firmly free-cash-flow negative.” However, Man Group, which is more than 240 years old and has $228.7 billion in assets under management, says it isn’t advocating avoidance of the space. “What we believe is required is rigorous credit selection across public and private markets, a clear-eyed view of which borrowers are ahead of the AI curve, and a portfolio that is diversified enough not to be held hostage to the AI story playing out as expected,” the strategists said. European and emerging-market credit appear to offer “increasingly compelling” diversification potential away from AI, they said. Man Group also said Japan and Hong Kong offer “the most fertile ground” in credit, while investors should be more selective with China and Indonesia, which require greater selectivity due to compressed spreads and commodity sensitivity. The firm also remains moderately constructive on emerging-market currencies, supported by rate differentials with the U.S. However, it said extended speculative positioning, as well as the potential the Federal Reserve becomes more hawkish than expected, are key risks.
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