Core Viewpoint - The convertible bond market in China has entered a technical bull market, with the China Convertible Bond Index reaching a new high of 439.86 points on June 25, marking a cumulative increase of over 20% since September of the previous year [1][4][2]. Market Performance - The China Convertible Bond Index has shown a strong upward trend, reaching its highest level since June 26, 2015 [2]. - The convertible bond market has benefited from a supportive policy environment and a strong performance in the A-share market since September 24 of the previous year, which has boosted investor confidence [4][5]. Supply and Demand Dynamics - The convertible bond market is experiencing a shrinking supply, leading to increased scarcity and heightened demand from investors [1][4]. - Despite concerns over credit risk and defaults in the first half of 2024, the overall risk has significantly decreased, allowing for a recovery in investor confidence and capital inflow into the convertible bond market [5][6]. Fund Performance - Convertible bond funds have performed well, with several funds achieving year-to-date returns exceeding 8% as of June 24 [5]. - The scale of convertible bond ETFs has increased significantly, with the Bosera China Convertible Bond ETF reaching over 400 billion yuan, a fivefold increase from the beginning of 2024 [5][6]. Investor Behavior - Investors are exhibiting a tendency to take profits amid the strong performance of the convertible bond market, reflecting a rational approach to risk management [6][7]. - The current high valuation of the convertible bond market, with a median conversion premium rate close to 30%, raises concerns about potential price corrections if underlying stock prices fluctuate [8]. Future Outlook - The future performance of the convertible bond market may increasingly depend on the performance of underlying stocks, as high conversion premiums could lead to significant risks if stock prices decline [8][9]. - The ongoing supply contraction in the convertible bond market may lead to increased difficulty in selecting bonds, potentially reducing the market's attractiveness and liquidity [9].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - The convertible bond market reached a critical stage in June 2025, a high - incidence period for convertible bond credit events. The report reviews the 2024 convertible bond credit storm and seeks coping strategies [1][9]. - The 2024 credit shock was the most extensive in the history of the convertible bond market. The root cause was the weak performance of the underlying stocks, and there were also other factors such as issuer fundamentals, market structure, and institutional behavior [2][3]. - In 2025, the approach to convertible bond credit risks has changed. The probability of a continuous and significant decline in the equity market has decreased, reducing delisting risks and repayment pressure. It is recommended to appropriately explore opportunities for mispricing repair [4][73]. 3. Summary According to the Catalog 3.1. Revisiting the 2024 Credit Storm: A Lesson from History 3.1.1. Review of Seven Important Credit Storm Events - **Event 1: April 2024 - New Nine - National Policies and Delisting Rules Triggered a Small - Scale Credit Shock**: On April 12, 2024, the new Nine - National Policies and delisting rules were released, causing significant differentiation in the equity and convertible bond markets. Small - cap stocks were under pressure, and nearly a hundred convertible bonds fell more than 5% within two days. Investor sentiment became cautious. After the regulatory clarification, the market recovered, and there was an inflow of incremental funds, but it also laid the groundwork for subsequent adjustments [11][12]. - **Event 2: May 2024 - Concentration of Credit Events of Weak - Quality Individual Bonds Signaled the Brewing of a Major Credit Storm**: In late April, some convertible bonds were affected by ST or non - disclosure of annual reports. In May, credit events such as debt overdue and rating downgrades of Lingnan Convertible Bond, and rating downgrades of Sanfang and Hongtu Convertible Bonds shattered the recovery trend of low - price bond valuations [18]. - **Event 3: Mid - June 2024 - Doubts about the Capital Chain of Photovoltaic Convertible Bonds Led to Institutional Selling**: On June 19, due to concerns about the capital liquidity of a photovoltaic component convertible bond issuer and the actual controller's attempt to reduce holdings, there was a large - scale sell - off of photovoltaic convertible bonds, intensifying market credit concerns [23]. - **Event 4: Late June 2024 - Concentrated Rating Downgrades, Including Unexpected Large - Cap Bonds**: After the adjustment of photovoltaic convertible bonds, there was a concentrated rating downgrade. The rating downgrade of Wentai Convertible Bond on June 20 significantly exceeded expectations, suppressing institutional sentiment and increasing concerns about future rating adjustments [29]. - **Event 5: Self - Rescue of Shanying Convertible Bond**: Shanying Convertible Bond faced repayment pressure. After the issuer announced a series of self - rescue measures on June 21, the bond price rebounded. Eventually, with the recovery of the equity market, the bond's parity rose above the maturity repayment price, and the repayment pressure was greatly relieved [35][36]. - **Event 6: Guanghui Convertible Bond's Repeated Struggles and Final Delisting**: Due to industry and company - specific problems, Guanghui Convertible Bond's underlying stock price fell below the face value, triggering delisting risk. Despite efforts to boost the stock price, it still entered the delisting process on July 18, causing market adjustments [40][41]. - **Event 7: Lingnan Convertible Bond's Default Shocked the Market**: On August 14, 2024, Lingnan Convertible Bond announced its inability to pay principal and interest on schedule, becoming the first convertible bond to default in the market. Its default had a greater impact on the market than previous defaults [45]. 3.1.2. Scar Effect of the Credit Storm - The 2024 credit shock was the most extensive in history, with over 50% of convertible bonds falling below the bond floor, and the proportion of bonds falling below the face value was also at a historical high [47]. - The pricing anchor for weak - quality individual bonds was lost, making it difficult for investors to make decisions. However, considering industry cycles and issuer efforts, the bond floor can still be used as a pricing anchor for debt - oriented convertible bonds [51][52]. - In terms of market structure, cyclical sectors such as agriculture, new energy, and chemicals had a higher proportion of convertible bonds falling deeply below the bond floor. AAA - rated convertible bonds had stronger credit risk resistance [55]. 3.2. Essence and Enlightenment of the Credit Storm - **Root Cause**: The weak performance of the underlying stocks was the root cause of the 2024 convertible bond market decline. When the equity market was weak, credit events would amplify negative feedback. In addition, there were other factors such as low - risk - preference incremental funds, weak issuer fundamentals, regulatory tightening, and market structural "aging" [3][60][64]. - **Coping Strategies**: Monitor the equity market's small - cap sector. Avoid bonds with obvious risks, especially those with high delisting pressure. Adjust positions based on the credit impact on different - quality bonds. During the shock, allocate large - cap and near - bond - floor bonds. Institutions with stable liabilities can consider participating in mispriced markets, while those with sensitive liabilities should wait for positive equity signals [68][69].

Report Industry Investment Rating - Not provided in the content Core Viewpoints of the Report - The convertibles market has low trading enthusiasm due to the high - quality development of public funds and the lack of sustainability in the small - cap growth market. High - rating convertibles are scarce in terms of quantity and may become even more so with the potential delisting of some large - scale convertibles. Their valuations are low, and they are more cost - effective in the current market environment. In the short term, the stock - bond ratio favors bonds in the contraction cycle, and the convertibles position is reduced to 70%, with an 8:2 ratio of low - price (pure - bond substitute) to double - low convertibles, all being value - type targets [2][3][6] Summary by Relevant Catalogs 1. Recent Convertibles Market Review - After May Day, the pessimistic fundamental expectations were partially repaired. The overall trading activity of convertibles was low, with the average daily turnover remaining stable at 58.1 billion yuan compared to before May Day. The median convertible price was around 120 yuan, and the conversion premium rate and implied volatility were slightly adjusted. The bank - sector convertibles followed the rise of the underlying stocks but with a smaller increase. The market risk preference was low, and investors preferred the debt - hedging attribute of convertibles [12][13] 2. High - Rating Convertibles Cost - Effectiveness Analysis 2.1 Convertibles Market Alternative High - Quality Assets Are Scarce - AAA and AA+ level convertibles account for 7% and 9% of the whole market respectively, mainly in industries such as banking, non - banking, etc. Since the second half of 2023, the proportion of AAA and AA+ level convertibles has been decreasing, but their non - converted balance accounts for about 70% of the whole market. The delisting of Nanyin, Hangyin, and Pufa convertibles will significantly increase the scarcity of high - rating convertibles, and high - rating convertibles generally have a short remaining term [20][21] 2.2 High - Rating Convertibles Valuations Are Continuously Low - From the perspective of the conversion premium rate, the valuation of high - rating convertibles is low. Since the fourth quarter of 2024, although small - cap growth convertibles have had periodic market conditions, the conversion premium rate of AAA - level convertibles remains at a relatively low level. The reasons may be that funds prefer elastic varieties, and the shrinking scale of AAA - level convertibles supports the price and suppresses the valuation expansion [23][25] 2.3 Convertibles Market Credit Risk Concerns Have Not Returned to the Level Before 2024 - In 2024, the new "Nine - National - Articles" delisting rule strengthened the transmission of the underlying stock delisting risk to the convertibles market, and the market re - evaluated the credit risk of medium - and low - rating convertibles. In 2025, market concerns about credit risk have not subsided. The pure - bond premium rate repair is small, and the pure - bond premium rate of near - maturity convertibles is still negative. The credit qualification differentiation is intensified, and the credit spread of medium - and low - rating convertibles is at a historical high, while that of AAA - level convertibles is at a historical low. June is the peak period for convertibles rating adjustment, which may further suppress the risk preference for small - cap convertibles [30][31] 2.4 High - Rating Convertibles Are More Cost - Effective - In recent years, interest rate cuts aim to avoid systemic liquidity crises. The latest monetary policy report is beneficial to alleviating the pressure on the bank's liability side. In the context of low interest rates and asset shortage, high - rating convertibles are the core configuration of fixed - income +, and the supply contraction supports the valuation. With the approaching of the convertibles rating adjustment period, high - rating and stable convertibles are superior, and the positions of social security and insurance funds are also biased towards high - rating convertibles [33] 3. Asset Allocation Viewpoint - In the short term, according to the top - down view, the stock - bond ratio favors bonds in the contraction cycle. The trading value of both stocks and bonds is currently limited, and the convertibles position is reduced to 70%. The ratio of low - price (pure - bond substitute) to double - low convertibles is 8:2, all being value - type targets. The report also shows the convertibles broad - based portfolio [6][37]