The recent fluctuations in the convertible bond market,following the National Day holiday,have sparked considerable attention.Following a remarkable peak on October 8,when the China Convertible Bond Index reached its highest mark since September 2022,the market experienced persistent downward pressure shortly afterward.This volatility has left many investors contemplating the future of convertible bonds amidst mixed signals from equity markets and macroeconomic policies.

Despite these fluctuations,investment experts assert that this temporary correction does not undermine the investment value of convertible bonds.They forecast a potential rebound in the equity market due to ongoing policy support,suggesting that the convertible bond market may follow suit and experience a compensatory rally shortly.

The latest developments in the convertible bond market reveal a narrative of both highs and lows.The period from September 24 to October 8 witnessed a remarkable upward trend,with the index surging more than 15%.Moreover,on October 8,it peaked at 421.12 points during trading hours—marking a notable high since September 2022.Concurrently,the transaction volume in the convertible bond market surpassed 150 billion yuan,setting an annual record and leading to several bonds hitting their upper trading limit.However,this upward trend was short-lived; from October 9 to October 11,the index fell more than 4.6%,raising concerns among investors.

Deng Xinyu,head of the mixed assets team at the Fixed Income Investment Department of China Europe Fund,highlighted the potential for recovery driven by ongoing enhancements in macroeconomic policies.As the market sentiment rapidly rebounds,the equity market has displayed a swift and substantial upswing,prompting corresponding movements in the convertible bond market.

According to Deng,market conditions can typically be analyzed in two phases: valuation correction and fundamental drivers.Currently,the focus is on the short-term valuation correction triggered by policy changes.Investors are advised to monitor the actual implementation of these policies and any subsequent improvements in economic fundamentals.

Zhejiang Securities pointed out that the rapid recovery in the current phase of convertible bonds reflects an equity market rebound influenced by new financial policies introduced after September 24,which has outpaced historical precedents.Furthermore,the recent corrections in the market were primarily due to investor concerns over credit risks that persisted from June to August,causing instability in the bond foundations.

On a positive note,the recent recovery in the equity market has alleviated concerns over numerous convertible bonds trading below par value.As of the close on October 11,the number of convertible bonds priced below face value had dropped to 97,a significant decline from 165 on September 23—representing a 41.2% reduction.Notably,within this subset,72 bonds were priced between 90 to 100 yuan,making up over 70% of those below par.

Looking ahead,Deng believes that as pessimistic sentiments in the convertible bond market begin to shift,and as the equity markets stabilize,there exists a potential for further valuation recovery in convertible bonds.With the anticipated increase in conversion values,investors may have promising opportunities on the horizon.

As announced during a recent press conference held by the Ministry of Finance on October 12,capital market expectations are in a state of transition,leaning towards optimism.The ministry's signals indicate a proactive stance on fiscal policy,allowing for ample maneuvering room for future endeavors aimed at bolstering the equity markets,which could effectively support and prop the market upward again.Analysts foresee the convertible bond market likely tracking this upward trajectory.

HuaXi Securities shares similar sentiments,noting that even amidst temporary headwinds,the shift in fiscal policy approach—especially following policy implementations—will ease concerns of volatility for convertible bond investors.Given the current historical static yields,there remains a substantial potential for valuation recovery.As policies consolidate and if the underlying equities solidify their growth patterns while offering favorable convertible bond valuations,a resurgence in convertible bonds appears imminent.

Moreover,experts emphasize the critical nature of this moment for convertible bond investments.Current valuations are perceived to be low,supporting the notion of constructing portfolios centered around valuation recovery while seizing investment opportunities.Approaches from HuaXi Securities suggest that compared to historical movements,today’s convertible bond prices stand lower than any comparable phase,suggesting that even after considerable market swings,there remains significant attractiveness in terms of “value for money.”

From their perspective,Deng advises focusing on individual bond valuations and the underlying company's operational quality when identifying undervalued,high-quality bonds.Additionally,considering the recovery of option values is also significant; certain low-priced bonds with reasonable conversion premiums should be prioritized to balance defensive and aggressive investment strategies.

Furthermore,Gao Hui,the manager of Bosera's convertible bond ETF,advocates a long-term focus,highlighting the expected returns from price parity increases,valuation recoveries,credit risk premiums,and favorable negotiations (such as term renegotiations).The current market conditions warrant significant attention on convertible bonds within the broader fixed income asset spectrum.

From a structural investment stance,a ‘barbell’ strategy is recommended,where bonds displaying “low price + double low” characteristics are expected to yield strong performance during valuation recovery phases.Concurrently,bonds with low premiums tied to equities are poised to capitalize on upward movements in stock prices.

GuaFu Securities identifies that within the current market backdrop,sectors that previously underwent valuation adjustments are likely to see rebounds,potentially generating excess returns beyond typical equity contributions.Their recommendation is to focus on convertible bonds within sectors like finance,utilities,and high-yield coal industries,as well as convertible bonds closely related to the A500 index and previously compressed valuation categories.

In conclusion,the excitement surrounding the convertible bond market reflects a dynamic landscape ripe for investment strategies aimed at harnessing the impending recovery opportunities.With policymakers signaling ongoing support and investor sentiment gradually shifting towards optimism,the convertible bond sector is set to enter a new phase of active engagement and investment potential.