Report Industry Investment Rating No relevant content provided. Core Viewpoints of the Report - The sustainability of polarized valuations depends on the direction of the equity market. The report presents three scenarios for the equity market and corresponding convertible bond strategies: 1) If the spring rally continues, the Shanghai Composite Index breaks through 4,200, and the market style shifts from small - cap to large - cap, it is recommended to select convertible bonds related to the battery, automotive/robot/intelligent driving, edge - side AI, and innovative drug/CDMO sectors in the growth technology sector; 2) If the broad - based index continues the January oscillation and the small - cap style remains dominant, focus on core targets in popular tracks such as commercial space, AIDC - related gas turbines/liquid cooling, semiconductor equipment and materials, power semiconductors, and chemical industries; 3) If the equity market turns down, it is recommended to reduce positions first and then focus on defensive sectors like banks, power, and pig farming [2][20]. Summary According to Relevant Catalogs Market Focus from January 26 - January 30, 2026 - **Stock Market**: Daily trading volume remained high with rapid sector rotation. The precious metals sector led the gains but had a significant decline on Friday. The A - share oil and gas sector performed well due to the potential conflict risk between the US and Iran. Some previously popular sectors such as commercial space and space photovoltaics had significant pullbacks. Different sectors rose and fell on different days. In terms of industries, most Shenwan primary industries declined, with petroleum and petrochemicals, communications, coal, non - ferrous metals, and agriculture, forestry, animal husbandry, and fishery leading the gains, while national defense and military industry, power equipment, automotive, and computer sectors performing poorly [8][9]. - **Bond Market**: The central bank's open - market operations were mainly net injections, and the money market shifted from tight to loose. Bond market sentiment was generally strong. The 10 - year Treasury bond yield closed at 1.81% on Friday, down 1.86bp from the previous week [9]. - **Convertible Bond Market**: Most convertible bond issues declined. The CSI Convertible Bond Index fell 2.61% for the week, the median price dropped 2.22%, the arithmetic average parity fell 3.70%, and the overall market conversion premium rate increased 1.12% compared to the previous week. The arithmetic average conversion premium rates of convertible bonds in different parity ranges changed, and they were at high percentile values since 2023 [9]. Viewpoints and Strategies from February 2 - February 6, 2026 - After the convertible bond market adjusted with the equity market last week, the sustainability of polarized valuations depends on the equity market's direction. Three scenarios and corresponding strategies are proposed as mentioned in the core viewpoints [2][20]. Valuation Overview - As of January 30, 2026, the average conversion premium rates of equity - biased convertible bonds in different parity ranges were at high percentile values since 2010 and 2021. The average YTM of debt - biased convertible bonds with a parity below 70 yuan was at a low percentile value. The average implied volatility of all convertible bonds and the difference between the convertible bond implied volatility and the long - term actual volatility of the underlying stocks were at high percentile values [21]. Primary Market Tracking - **Last Week (January 26 - January 30, 2026)**: No convertible bonds were announced for issuance. Lianrui Convertible Bond and Naipu Convertible Bond 02 were listed. Lianrui Convertible Bond has a scale of 695 million yuan, and Naipu Convertible Bond 02 has a scale of 450 million yuan [28][29]. - **Future Outlook**: No convertible bonds are announced for issuance or listing in the next week (February 2 - February 6, 2026). As of now, there are 100 convertible bonds waiting to be issued, with a total scale of 155.9 billion yuan, of which 8 have been approved for registration, with a total scale of 6.16 billion yuan [30][31].

Macroeconomic Insights - November inflation data shows CPI increased by 0.7% year-on-year, meeting expectations, while month-on-month decreased by 0.1%. Core CPI, excluding food and energy, rose by 1.2% year-on-year. PPI decreased by 2.2% year-on-year, lower than the expected -2%, but increased by 0.1% month-on-month [5][7]. - The IMF projects China's economy to grow by 5.0% in 2025 and 4.5% in 2026 [7]. - The bond market continued its recovery, with long-term government bonds showing significant improvement. The main contract for 30-year government bonds rose by 0.3% [7]. Equity Market Analysis - The market exhibited a rebound after a dip, indicating strong support at lower levels. The computing hardware sector was pivotal in driving the index's recovery, and its core stocks will be crucial for future observations [9]. - The Ministry of Commerce's promotion of the "Fat Donglai model" focuses on the lower-tier market, indicating a shift in retail competition towards refined operations, personalized services, and deep digital integration for high-quality development [10]. - Hainan's free trade port's full island closure and its 14th Five-Year Plan mark a new phase of higher-level openness. Short-term investment prospects include consumer return and policy benefits, while medium-term focuses on modern service industries and unique industrial clusters [10].

Core Viewpoint - The bond market is experiencing a significant sell-off, with rising yields on government bonds attributed to recent inflation data and a strong equity market [1][3]. Group 1: Market Performance - On September 10, the yield on the 10-year government bond rose by 1.5 basis points to 1.81%, marking a return above 1.8% for the first time in five months [1]. - The 30-year government bond yield increased by over 2 basis points, reaching a new high since its issuance [1][3]. - The 30-year bond futures saw a decline of 0.82%, hitting a new low since March 24 [1]. Group 2: Influencing Factors - The decline in bond prices is linked to the August Producer Price Index (PPI), which fell by 2.9% year-on-year, the first contraction since March [3]. - The strong performance of the equity market, particularly since early July, has shifted investor preference from bonds to stocks, contributing to the sell-off in government bonds [3]. Group 3: Future Outlook - The bond market is expected to remain volatile, influenced by policy expectations, liquidity, and macroeconomic data [4]. - There is speculation that the central bank may resume government bond trading operations to stabilize prices and manage interest rates, especially in the current environment where equities are performing well and bonds are under pressure [5]. - Analysts suggest that improved coordination between fiscal and monetary policies could mitigate the impact of increased government bond supply on the bond market [5].

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].