AI disruption, private credit growth are key global credit risks: Fitch

Fitch Ratings says AI and heavy digital infrastructure spending are key global credit risks. AI may boost efficiency but threatens jobs and tax revenues. Investors are also concerned about private credit growth, sovereign risk, and market contagion.

Artificial intelligence (AI) and heavy digital infrastructure spending are emerging as key global credit risks, with AI expected to boost efficiency but also threaten jobs and tax revenues, particularly in developed economies, says Fitch Ratings.

Investor Focus on AI and Private Credit

According to Fitch, investors and official-sector participants across Hong Kong, Seoul, Singapore and Tokyo have centred their discussions on AI disruption, the rapid growth of private credit and sovereign risk. Investors are keeping a close watch on execution risks, elevated capex, pricing pressure and potential contagion from equity markets to credit markets, with bespoke hyperscaler contracts and tighter funding conditions increasing risks.

Private Credit Under Scrutiny

Fitch said private credit, on its own, is unlikely to pose a systemic financial risk. However, investors have raised concerns over growing competition for assets and limited transparency due to increasingly complex fund financing structures, including net asset value (NAV) loans, which can obscure the true extent of leverage and creditor rankings. The agency also noted that returns are coming under pressure as more capital flows into the asset class in search of higher yields.

According to Fitch, direct lending has recorded higher default rates than collateralised loan obligations (CLOs), although recovery rates have remained relatively strong. "Portfolio transparency and manager selection are critical for managing these risks, yet Asia-based investors face limited disclosure on US middle-market borrowers," it said.

Risks from Retail Investor Participation

Furthermore, the ratings agency flagged that increased participation by retail investors and retirement-account participation could raise liquidity and valuation risks, especially if slower asset exits delay cash returns and managers rely on fresh inflows for liquidity.

AI's Economic Impact

While AI will likely drive efficiency gains, it could also lead to job losses and weaken tax revenues, particularly in developed economies. "We believe AI will drive efficiency gains, but flag risks from labour displacement and eroding tax bases, especially in developed markets," it said.

Broader Macroeconomic Concerns

Fitch further added that while macro volatility, driven by Gulf tensions and supply-chain disruptions, persists, investor focus has shifted from immediate systemic shocks to secondary effects following the proposed peace deal. It added that the direct credit impact has so far been modest, but warned risks could resurface if the agreement falters and tensions escalate again. (ANI)

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