Group 1 - The report highlights that the valuation of convertible bonds does not directly reflect the volatility of the underlying stocks but rather follows the directional changes of the stocks. The market's confidence in the direction of stocks for 2026 remains strong, and the opportunity cost of convertible bonds is expected to be low in the near term [3][4] - The current high valuation of convertible bonds has already factored in significant expected increases in the underlying stocks' prices. The report suggests that the potential for further valuation increases in 2026 may rely more on the recovery of profitability rather than broad-based earnings growth [4][10] - The convertible bond market is expected to exhibit a "dumbbell" structure in 2026, with an increase in the number of new issues and changes in individual bond sizes and industry structures. However, the overall high valuation level may lead to new issues maintaining elevated listing valuations, making secondary market participation less attractive [5][10] Group 2 - The report discusses the construction of a long inflation strategy portfolio, including specific convertible bonds from sectors such as agriculture and electronics, while also preparing a corresponding cash flow strategy portfolio to mitigate potential adverse scenarios [9][10] - The analysis indicates that the high-low price strategy did not yield significant excess returns in 2025, and the report emphasizes the need to maintain a focus on low absolute price screening levels for future selections [6][10] - The report notes that the implied volatility of convertible bonds has recently exceeded the actual volatility of the underlying stocks, indicating a divergence that may reflect market sentiment rather than fundamental value [3][87]

Core Viewpoint - The convertible bond market is experiencing unprecedented highs, with new bonds being highly sought after, leading to a significant drop in the subscription rate for online offerings, which has fallen below 0.001% [1][2]. Group 1: Market Trends - The recent issuance of KaiZhong convertible bonds saw an effective subscription amount of 86,628.64 billion yuan, with an actual allocation of 75.986 million yuan, resulting in a subscription rate of only 0.0009% [2][3]. - Since April of this year, newly issued convertible bonds have generally recorded a first-day increase of around 30%, driven by a scarcity of existing bonds and high demand from investors [2][4]. - The subscription rates for two other recent convertible bonds, Huachen and Hengshuai, were even lower at 0.0003% and 0.0004%, respectively, with both experiencing first-day surges of 57% [2][3]. Group 2: Investment Strategies - In light of the declining subscription rates and increasing difficulty in obtaining new convertible bonds, the strategy of "抢权配售" (rights allocation) is recommended, where investors buy the underlying stock to gain priority in subscribing to new bonds [5][6]. - The rights allocation strategy allows investors to lock in profits from the new bonds while being cautious of potential losses from declines in the underlying stock [5][6]. - Financial analysis indicates that the allocation ratio for convertible bonds has been increasing since 2018, with over 70% in 2023 and 2024, partly due to investor interest in rights allocation [5][6]. Group 3: Market Sentiment and Valuation - The recent limited number of convertible bonds that have broken below par indicates a high success rate for new bond subscriptions, with returns primarily driven by the conversion premium rather than par value [4]. - The valuation of new convertible bonds has reached historically high levels, influenced by a "new bond scarcity" and positive market sentiment [4]. - The China Securities Convertible Bond Index has risen by 16.29% this year, closing at 482.10 points, marking a ten-year high [5].