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CREDIT MARKETS KEY TO FUNDING $1.5-TRLN DATA CENTRE BUILDOUT - MS

Front and centre of traders' minds this week is the spending behind the global data centre buildout which seems to keep ticking higher, just as bubble fears have flared.

One key question: how will it all be financed?

According to Morgan Stanley, credit markets are to play a key role in financing the circa $1.5 trillion of spending on the space until 2028.

This will include - but is not limited to - "vanilla corporate debt and JVs", writes Vishwas Patkar, head of U.S. credit strategy at the bank in an outlook piece published Wednesday.

"The enablers of AI capex are ultra-high-quality companies, most rated AA/higher, an important distinction versus prior capex cycles (e.g., shale in the 2010s, telecom in the 1990s)," adds Patkar.

The technology sector has lower leverage and more cash than other investment grade sector, his note points out.

And the team at MS seem unrattled by recent ructions in credit markets, saying recent bankruptcies and regional bank losses appear more company-specific and idiosyncratic.

"We think that the real driver of recent volatility isn’t credit, but rather an unwind in high-momentum stocks, which were unusually strong in September/October," writes Andrew Sheets, MS's global head of credit research.

(Lucy Raitano)

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