Summary of the Conference Call on Convertible Bond Strategy for 2026 Industry Overview - The conference call focuses on the convertible bond market in China, particularly the performance and outlook for 2026, influenced by macroeconomic factors and policy changes [1][3][8]. Key Points and Arguments Market Performance and Characteristics - The convertible bond market showed strong performance in 2025, with a cumulative increase of approximately 16.5% by the end of November [3]. - High-rated large-cap convertible bonds saw a rapid decline in scale due to tightened refinancing policies since 2024, particularly affecting bank convertible bonds [3][6]. - The rapid increase in ETF scale, reaching 620.682 billion, accounted for 12.5% of the convertible bond market, growing over 50% since the beginning of the year [1][5]. - The valuation of convertible bonds is increasingly aligned with the stock market, indicating a shift towards equity-like characteristics [1][3]. Future Supply and Demand Dynamics - Supply pressure in the convertible bond market is expected to persist into 2026, with a significant reduction in issuance anticipated due to strong redemption and delisting pressures [1][6][10]. - Despite the anticipated supply challenges, there is a strong willingness among major shareholders to issue new bonds due to lower financing costs [6][10]. - The demand for fixed-income products is expected to support valuations, preventing significant declines despite the shrinking supply [7][10]. Economic Outlook - The outlook for the A-share market in 2026 is optimistic, driven by expectations of economic recovery, structural adjustments, and policy reforms [8][9]. - Low-risk interest rates are likely to encourage a shift of savings and long-term capital into the equity market, enhancing the attractiveness of equity assets [9]. Investment Strategies for 2026 - Investment strategies should focus on two main opportunities: low-priced convertible bonds as a stabilizing asset and flexible equity-linked convertible bonds [11][14]. - Specific sectors to watch include technology growth (AI, humanoid robots), green energy (energy storage, hydrogen), and defensive positions in banking and public utilities [3][18]. - The strategy should involve active selection of bonds that are less likely to trigger strong redemption and those with a solid underlying stock logic [12][20]. Risks and Considerations - The potential for strong redemption events remains high, necessitating caution with high-priced and high-premium bonds that may trigger such actions [12][20]. - The shrinking scale of the convertible bond market may lead to capital inflows into the stock market, which could compress time value [2][10]. Conclusion - The convertible bond market in 2026 is expected to maintain high valuations supported by favorable policies and low-interest rates, despite challenges in supply and potential strong redemption pressures [10][14]. - A balanced approach with a focus on both defensive and flexible investment strategies will be crucial for navigating the market dynamics in the coming year [11][14].

Group 1 - The report emphasizes the need to shift from a broad market beta approach to a more refined selection of convertible bonds, focusing on four main themes: technology growth, energy-driven investments, anti-involution, and low-volatility bottom positions [1] - In 2025, the convertible bond market showed a strong performance with the CSI Convertible Bond Index achieving a cumulative increase of 16.50%, while the high-price low-premium index surged by 21.48% [7][16] - The report identifies three significant trends in the convertible bond market for 2025: the scarcity of bottom-position convertible bonds, the indexation of allocation tools, and a valuation logic that is increasingly equity-oriented [16][17] Group 2 - The supply of convertible bonds is expected to remain under pressure, with a notable decline in the total outstanding amount, which decreased by 22.49% compared to the beginning of the year [17][24] - The report forecasts that the valuation of convertible bonds will maintain a high level in 2026, supported by optimistic expectations for the equity market, particularly due to policy incentives and ongoing industrial policies in technology and high-end manufacturing [17][36] - The report suggests that the convertible bond market will continue to face challenges due to ongoing contraction, with large, high-rated, and highly liquid convertible bonds enjoying liquidity premiums due to their scarcity [17][20] Group 3 - The report highlights the importance of convertible bond ETFs as a growing allocation tool for institutional investors, with the market size reaching 68.2 billion yuan, accounting for 12.5% of the total convertible bond market [12][31] - The investment logic in the convertible bond market has shifted from a focus on debt protection to an emphasis on equity upside, as indicated by the rising median prices and increased conversion premium rates [16][34] - The report outlines three strategic focuses for 2026: selecting convertible bonds that are not subject to early redemption, strategically participating in new bond issuance windows, and identifying bonds with strong conversion intentions [17][36]

Core Viewpoint - The convertible bond market in 2026 requires a shift from a broad reliance on overall market beta to a more refined selection of individual bond values, focusing on four main themes: technology growth, energy-driven investments, anti-involution, and low volatility bottom positions [1][3]. Group 1: Market Performance and Trends - In 2025, the convertible bond market strengthened due to a tight supply-demand balance and support from the equity market, with the China Convertible Bond Index showing a cumulative increase of 16.50% [1]. - High-priced, low-premium rate indices outperformed, with a cumulative increase of 21.48%, while low-priced convertible bonds achieved a steady return of 17.05% due to price recovery and valuation uplift [1]. - The convertible bond market exhibited three notable characteristics in 2025: scarcity of bottom-position bonds, index-based allocation tools, and a valuation logic leaning towards equity [1]. Group 2: Supply and Demand Dynamics - The convertible bond market experienced a significant contraction, with the total size down by 22.49% from the beginning of the year, primarily due to a reduction in issuance plans and an increase in forced redemptions as the equity market rose [1]. - The supply side is expected to remain under pressure, with a significant contradiction between the supply and maturity scale of convertible bonds, even without considering forced redemptions [1]. Group 3: Future Outlook and Strategy - The valuation of convertible bonds is expected to remain high in 2026, supported by optimistic expectations for the equity market, driven by policy incentives and strong demand for equity assets [2]. - The first half of 2026 is anticipated to be a peak period for allocation, with a tight supply-demand balance providing a resilient foundation for high valuations [2]. - A neutral to slightly aggressive position is recommended for 2026, with a focus on maintaining a certain level of bottom-position bonds for liquidity and stability [3]. - Strategic opportunities should include selecting non-redeemed equity-type convertible bonds, participating in new bond issuance windows, and identifying bonds with strong conversion intentions [3].