Group 1: Report Industry Investment Rating - No information provided on the industry investment rating in the report Group 2: Core Views of the Report - The current self - adjustment of convertible bonds is not over, with weakened ability to follow the rise, and the valuation actively declines when the underlying stock pulls back. In the current market, the cost - performance of convertible bonds is low, but considering the slow - bull market of A - shares, there is no need to be overly worried. Now is a concentrated point for convertible bond realization, and high - price, low - premium equity - like varieties and defensive individual bonds are more worthy of consideration, such as some bottom - position varieties represented by banks [6][9]. - Backtesting on recent years' forced redemption cases shows that there are objective returns and a certain degree of certainty in gambling on forced redemption clauses. The number of subsequent forced redemptions and waived forced redemptions is still considerable and worthy of attention [6][9]. - The equity market showed a trend of rising first and then falling last week, with sector differentiation. The Shanghai Composite Index almost broke through the 3900 mark at the beginning of the week and then adjusted significantly. The short - term index needs to oscillate and adjust, but the view of a positive long - term index trend remains unchanged. Attention should be paid to the press conference of the State Council Information Office next Monday [6][9]. Group 3: Summary According to the Catalog 1. Convertible Bond Views: Valuation Continues to Compress, Waiting for the Entry Opportunity - The self - adjustment of convertible bonds is ongoing, with weakened follow - up ability and active valuation decline. The current cost - performance of convertible bonds is low, but there's no need for excessive worry. High - price, low - premium equity - like varieties and defensive individual bonds are recommended. The equity market had a volatile week, and the long - term trend of the index is still positive [6][9]. 2. Convertible Bond Review: Convertible Bonds Follow the Decline Again, Valuation Continues to Fall 2.1 Market Overall Performance: Equity Rises First and Then Falls, Technology Remains the Main Line - From September 15th to September 19th, market index performance was differentiated. The Shanghai Composite Index fell 1.30%, the Shenzhen Component Index rose 1.14%, the CSI 300 fell 0.44%, the CSI 1000 rose 0.21%, the ChiNext Index rose 2.34%, the STAR 50 rose 1.84%, and the Beijing Stock Exchange 50 fell 1.43%. In terms of industries, coal, power equipment, and electronics led the rise, while banks, non - ferrous metals, and non - bank finance led the decline. The average daily trading volume increased by 1922.4 billion yuan to 2.52 trillion yuan. The top ten rising convertible bonds last week were Jingxing, Hengshuai, Songsheng, etc., and Jingxing, Jing 23, Liyang, etc. were more active in trading [13]. 2.2 Valuation Actively Compresses, High - Price, Medium - and Low - Rated Convertible Bonds Perform Well - Last week, convertible bonds pulled back again, with active valuation compression. The average daily trading volume increased significantly to 818.02 billion yuan. The CSI Convertible Bond Index fell 1.55%, the parity center decreased by 1.1% to 111.1 yuan, and the conversion premium rate center decreased by 1.1% to 18.9%. In terms of style, high - price, medium - and low - rated convertible bonds performed well last week, while AA + rated and large - cap convertible bonds performed weakly [6][18]

Core Viewpoint - The convertible bond market is currently positioned close to the valuation peaks of 2022 and January 2015, indicating a high valuation environment with potential for adjustments in line with equity market movements [4][65][66]. Group 1: Market Outlook - The current positioning of convertible bonds is nearing the high valuation levels seen in 2022 and January 2015, suggesting a potential for adjustments [4][65]. - Historical patterns indicate that convertible bonds typically adjust in sync or lag behind the equity market, with the adjustment pace and magnitude being difficult to precede the equity market [4][66]. - The strong market conditions of previous bull markets (2007, 2009, 2015) saw convertible bond valuations significantly higher than current levels, highlighting the unique circumstances of those periods [4][65][66]. Group 2: Investment Strategy - Convertible bonds are viewed as the only viable option for pure bond investors transitioning to equity investments, with a sustained demand expected due to profit-making effects [4][66]. - A recommended strategy includes a focus on high-quality convertible bonds with a scale of over 1.5 billion yuan and a rating of AA or above, as well as low-priced convertible bonds that still present investment opportunities [9][66]. - The report suggests a monthly review and adjustment of the recommended convertible bond portfolio to maintain flexibility and responsiveness to market conditions [9][66]. Group 3: Valuation Metrics - The median price of convertible bonds is reported at approximately 127.63 yuan, close to the highest points seen in 2021-2022, with premium rates indicating a historical high for bond valuations [16][22]. - New issuances are generally priced above 130 yuan, reflecting a strong market sentiment and high valuation levels similar to previous peaks [22][66]. - The current premium rates for convertible bonds are significantly elevated, with many bonds trading at premiums exceeding 30%, indicating a robust demand despite high valuations [16][22][66].

Core Viewpoint - The article discusses the current state of convertible bonds, indicating that their price-performance ratio has reached a high level not seen since 2022, suggesting a potential shift in investment strategy for holders of convertible bonds [1][3]. Summary by Sections Performance Analysis - The pricing of convertible bonds has entered a high range, with the option pricing relative to stocks also at a medium to high level [1]. - During the period from January 1, 2018, to December 31, 2021, convertible bonds were in a favorable pricing environment, yielding a cumulative return of 99.7% with a maximum drawdown of 12% [3]. - In contrast, from January 1, 2022, to October 31, 2024, convertible bonds faced a disadvantageous pricing environment, resulting in a cumulative return of -7.5% and a maximum drawdown of 38% [4]. - From November 2024 to the present, convertible bonds have shown a cumulative return of 17.3% with a maximum drawdown of 9.2%, indicating a recovery phase [4]. Recommendations - For investors holding convertible bonds or ETFs, it is suggested to gradually shift a significant portion of their holdings to investment management (IM) or high-quality public funds, as public funds have outperformed broader indices this year [5]. - Investors who can achieve noticeable alpha from convertible bonds are encouraged to dynamically adjust their asset allocation between equity and convertible bonds based on the current price-performance ratio to optimize returns [5].

Quantitative Models and Construction Methods Model Name: Convertible Bond Valuation Model - **Construction Idea**: Compare the valuation of convertible bonds with their underlying stocks using a time-series comparable valuation indicator called "Premium Rate per 100 Yuan Conversion"[5] - **Construction Process**: - Calculate the rolling historical percentile to measure the relative allocation value of convertible bonds and stocks[5] - Formula: $$ y_{i}=\alpha_{0}+\,\alpha_{1}\cdot\,{\frac{1}{x_{i}}}+\epsilon_{i} $$ where \( y_{i} \) is the conversion premium rate of the i-th convertible bond, \( x_{i} \) is the conversion value of the i-th convertible bond[42] - **Evaluation**: The model indicates that the convertible bond valuation is relatively expensive[5] - **Test Results**: - Rolling three-year percentile: 64.9% - Rolling five-year percentile: 67.3%[5] Model Name: Convertible Bond and Credit Bond Valuation Comparison Model - **Construction Idea**: Compare the valuation of debt-oriented convertible bonds and credit bonds by stripping out the impact of conversion terms on the convertible bond's yield to maturity (YTM)[6] - **Construction Process**: - Calculate "Adjusted YTM – Credit Bond YTM" median to measure the relative allocation value between debt-oriented convertible bonds and credit bonds[6] - Formula: $$ \text{Adjusted YTM} = \text{Convertible Bond YTM} \times (1 - \text{Conversion Probability}) + \text{Expected Conversion Annual Yield} \times \text{Conversion Probability} $$ $$ \text{"Adjusted YTM – Credit Bond YTM" Median} = \text{median}\{X_1, X_2, ..., X_n\} $$ where \( X_i \) represents the difference between the adjusted YTM of the i-th convertible bond and the YTM of a credit bond of the same grade and term[43] - **Evaluation**: The overall allocation cost-effectiveness of debt-oriented convertible bonds is relatively low[6] - **Test Results**: - Current "Adjusted YTM – Credit Bond YTM" median: -1.26%[6] Quantitative Factors and Construction Methods Factor Name: Convertible Bond Comprehensive Valuation Factor - **Construction Idea**: Enhance the allocation value of convertible bonds from a valuation perspective by combining the deviation of conversion premium rate and theoretical value deviation (Monte Carlo model)[7][20] - **Construction Process**: - Combine the ranks of conversion premium rate deviation and theoretical value deviation (Monte Carlo model) to form the comprehensive valuation factor[21] - Formula: $$ \text{Convertible Bond Comprehensive Valuation Factor} = \text{Rank}(\text{Conversion Premium Rate Deviation}) + \text{Rank}(\text{Theoretical Value Deviation (Monte Carlo Model)}) $$ - Construct low valuation indices for equity-oriented, balanced, and debt-oriented convertible bonds based on the top 1/3 ranking of the comprehensive valuation factor[22] - **Evaluation**: The comprehensive valuation factor performs well in equity-oriented, balanced, and debt-oriented convertible bonds[20] - **Test Results**: - Equity-oriented convertible bond low valuation factor: -1.40% - Balanced convertible bond low valuation factor: -0.55% - Debt-oriented convertible bond low valuation factor: 1.12%[23] Factor Name: Convertible Bond Market Sentiment Factor - **Construction Idea**: Capture market sentiment using convertible bond momentum and volatility deviation to construct a convertible bond style rotation portfolio[27] - **Construction Process**: - Calculate the median of the sentiment factors within the low valuation style indices[27] - Formula: $$ \text{Convertible Bond Market Sentiment Factor} = \text{Rank}(\text{Convertible Bond 20-Day Momentum}) + \text{Rank}(\text{Volatility Deviation}) $$ - Allocate positions based on the ranking of sentiment factors, with bi-weekly adjustments[28] - **Evaluation**: The style rotation portfolio based on market sentiment factors shows stable excess returns[27] - **Test Results**: - Recent 4-week style rotation return: 2.37% - Year-to-date style rotation return: 29.73%[30] Model Backtest Results Convertible Bond Comprehensive Valuation Factor - **Annualized Return**: 24.63% - **Annualized Volatility**: 20.59% - **Maximum Drawdown**: -22.94% - **Information Ratio (IR)**: 1.20 - **Calmar Ratio**: 1.07 - **Monthly Win Rate**: 60.67%[24] Convertible Bond Market Sentiment Factor - **Annualized Return**: 24.00% - **Annualized Volatility**: 16.69% - **Maximum Drawdown**: -15.89% - **Information Ratio (IR)**: 1.44 - **Calmar Ratio**: 1.51 - **Monthly Win Rate**: 64.04%[33]

Core Viewpoint - The convertible bond market is experiencing a marginal improvement in supply and demand dynamics, leading to a downward trend in valuation centrality as the number of early redemptions decreases and issuance increases [1][3][4]. Group 1: Market Dynamics - The central valuation of convertible bonds has declined since mid-March when the China Securities Convertible Bond Index reached a nearly 10-year high [3]. - The median price of convertible bonds has dropped from above 120 yuan to below 120 yuan, with the index showing a cumulative decline of nearly 4% since its peak [3][4]. - The increase in issuance of convertible bonds, with 12 bonds issued this year totaling 170.96 billion yuan, has alleviated previous supply-demand imbalances [3][4]. Group 2: Factors Influencing Valuation - The easing of supply-demand conflicts is attributed to increased issuance and a reduction in the number of early redemptions, particularly after a peak in March and April [3][4]. - Market analysts suggest that the previous high valuations were driven by scarcity premiums due to supply-demand imbalances, and the market is now returning to a more rational valuation [4]. Group 3: Investor Behavior and Risks - Investors are currently focused on avoiding performance risks, especially with the upcoming 2024 financial reports and the implementation of new regulations [6][10]. - The market is likely to favor fundamental performance over growth expectations, with potential downgrades in ratings for certain convertible bonds following the financial disclosures [6][10]. - The risk of performance-related declines in stock prices is significant, as convertible bond prices are closely tied to the underlying stock performance [7][10]. Group 4: Investment Strategies - Institutions recommend focusing on structural opportunities, particularly in sectors benefiting from domestic demand, high dividends, and self-sufficiency [10]. - Investors are advised to prioritize convertible bonds from companies with strong operational fundamentals and to diversify investments to mitigate risks associated with poor performance [8][10].