Question

What are the top 2 risks a global investor could face while investing in Qantas and Virgin Australia shares and bonds over the next six to twelve months?

Answer 1

The next 6 to 12 months can see further cut in capacity, rationalizing of routes and putting in place a strategy that will help Qantas and Virgin Australia to fight for survival. In this backdrop the top 2 risks that a global investor could face while investing in Qantas and Virgin Australia shares and bonds over the next six to twelve months are:

• Credit risk – This risk is in case of bond holders of Qantas and Virgin Australia. Currently Virgin Australia is entering into bankruptcy and hence there are doubts with regards to the ability of the company to make interest or principal payments when they are due.
• Liquidity risk – This risk is arising for shareholders and bondholders of Qantas and Virgin Australia. With the deteriorating economic conditions and business conditions the share prices of Qantas and Virgin Australia has the prospect of falling in future and this brings with itself liquidity risk as shareholders will not be able to easily sell their shares at their purchase price. The bondholders, who want to sell, will be able to sell at a significant discount to market value.