COVID-19 could trigger next GFC, Ariel Investments Rupal Bhansali
The coronavirus could trigger the next financial crisis but the underlying cause will be subprime corporate loans, contrarian investor and chief stock picker for the $19 billion Ariel Investments Rupal Bhansali warns. Recently inducted into Barron’s investment roundtable of Wall Street’s 10 smartest investors, Ms Bhansali is visiting Melbourne and Sydney for a women in super event, but isn't overreacting to the dive in global markets yet. Ms Bhansali has a "bearish view of the overall market" and is waiting for a correction by as much as 20 per cent before she plans to swoop in.
"Coronavirus is in the news so people are worried about it but the bigger worry is indebted companies, which are going to find it very hard to get through these economic shocks because balance sheets are so overloaded," Ms Bhansali tells The Australian Financial Review. "We did not know if the economic shock would come from coronavirus or something else [but] in the worst-case scenario many, many companies will default on their bonds," she says, pointing to the decline in GE's value over recent years as a "canary in the coal mine ... That was a 150-year-old company that was on its knees," she says.
"The risk/reward in the Australian equity market is simply not compelling enough for us," she says. "We think the banks have a lot of leverage and will go through an underwriting cycle that will be quite painful. We have had a lot of asset price inflation and we think the banks will have a further reset on profit margins."