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Securities Times reporter Wu Qi

Due to factors such as credit rating downgrades and concerns about delisting of underlying stocks at par value, the performance of low-priced convertible bonds continued to be sluggish.

The convertible bond market has seen a significant adjustment since May. The CSI Convertible Bond Index has fallen by more than 4% this year, and the Convertible Bond Equal Weight Index has fallen even more, with a cumulative decline of nearly 10%. As for convertible bond theme funds, as of August 14, only a few convertible bond theme funds such as ICBC Convertible Bond and Minsheng Jiayin Convertible Bond Selection have maintained positive returns this year, and the net value of many funds has fallen by more than 10% this year.

However, from the perspective of capital flow, the scale of the only two convertible bond ETFs on the market has repeatedly hit new highs, and funds are showing a trend of buying more as the price falls. From the perspective of the reasons behind this, some institutions believe that the current convertible bond market is in a low-price and low-valuation range, and the left-side configuration value is significant.

Convertible bond market is under a shadow again

On the evening of August 13, Blue Shield issued a debt repayment announcement stating that due to the company's debt crisis and operational crisis, huge debts were overdue, the company's main bank accounts and assets had been frozen or sealed by the court, and there was a serious shortage of funds. The principal and interest of the "Blue Shield Debt Refund" convertible bonds that should have been paid on August 13 could not be paid on time. In view of the company's failure to pay the principal and interest of the "Blue Shield Debt Refund" convertible bonds on time, bondholders can protect their own rights and interests through relevant legal channels such as relevant judicial channels.

After Soute Bond Refund broke the 30-year zero-default record in the convertible bond market in May this year, Blue Shield Bond Refund became the second convertible bond to have a substantial default. The Blue Shield Bond Refund default once again hit investors' fluke mentality and cast a shadow on the convertible bond market.

On the same day, Lingnan Shares stated that the company's existing cash and cash equivalents are insufficient to cover the redemption amount of the "Lingnan Convertible Bonds". The conversion period of the Lingnan Convertible Bonds issued by the company will end on August 14, 2024. Holders can only convert them into stocks. However, it is expected that the "Lingnan Convertible Bonds" will not be able to repay the principal and interest after maturity, and there is a significant risk of default.

From the market perspective, the latest CSI convertible bond index is close to the low point of the year, with the decline widening to 4.27% this year, and the convertible bond equal-weighted index has fallen as much as 9.51% this year. As of now, there are 128 convertible bonds that have fallen below the face value of 100 yuan, accounting for 24.38%, nearly a quarter of the entire market.

Convertible Bond ETFs

Market share grew against the trend

The poor performance of the convertible bond market also dragged down the net value of convertible bond theme funds. Wind data shows that among the 72 convertible bond theme funds (shares are counted separately), only a few convertible bond funds such as ICBC Convertible Bond and Minsheng Jiayin Convertible Bond Selection have achieved positive performance returns this year. The net value of many convertible bond theme funds has fallen by more than 10% this year, with Rongtong Convertible Bond and Dongfang Convertible Bond leading the decline.

It is worth noting that as the only two convertible bond ETFs traded on the market, the annualized returns of the Haitong SSE Convertible Bond ETF and the Bosera Convertible Bond ETF are 0.29% and -3.99% respectively, but their scale is setting new highs.

Data from Bosera Convertible Bond ETF showed that the circulating shares disclosed on August 13 were 1.58 billion shares, with a scale of 16.69 billion yuan, both of which were at historical highs. The shares increased by 176% compared with 573 million shares at the end of last year, and increased by 44.56% compared with the end of the second quarter of this year.

The scale of Haitong SSE Convertible Bond ETF also increased significantly. The circulating shares disclosed on August 13 were 121 million shares, and the scale was 1.259 billion yuan, both of which were at historical highs. The shares increased by 88 million shares compared with 33 million shares at the end of last year, an increase of 167%, and an increase of 21% compared with the end of the second quarter of this year.

Some securities analysts said that when the convertible bond market experiences a sharp pullback, left-side allocation funds will flow into convertible bond ETFs, causing the share of convertible bond ETFs to increase rapidly.

Institutions say the value of left-side configuration is highlighted

Convertible bonds are often considered to have the characteristics of "being able to attack or defend". When the stock price rises, the convertible bond price may usually follow the rise, and when the stock price falls, the convertible bond has the pure bond value as a safety cushion. Therefore, convertible bond ETFs are considered to be high-quality assets in asset allocation products, which help balance the risk and return of the investment portfolio and reduce portfolio volatility.

At present, the convertible bond market continues to perform poorly, and the occurrence of default incidents has also caused investors to worry about its safety.

Haitong Fund said that it is still optimistic about the convertible bond market. From the perspective of the time dimension within this year or the next year, convertible bonds have a higher probability of obtaining absolute returns compared to assets such as stocks and bonds. The relative returns depend on the market beta. The current convertible bond market has been oversold, and the price-performance ratio is high. The probability of achieving higher returns than credit bonds and obtaining absolute returns before the end of the year is high. In an unstable market environment, more emphasis is placed on the "safety" of assets.

"From the perspective of absolute returns, current convertible bonds have good allocation value, but their upward elasticity may be less than that of stocks." Gui Zhenghui, deputy director of investment and fund manager of Bosera Fund Index and Quantitative Investment Department, analyzed that the current convertible bond price is low and the conversion premium rate is high. Compared with stocks, the current risk-return of convertible bonds is "asymmetric". In addition, the credit risk disturbance of convertible bonds has increased compared with the past. When seizing convertible bond investment opportunities, it is necessary to carefully evaluate the credit risk of individual bonds.

Another securities analyst said that based on the market YTM (yield to maturity) difference and pricing deviation, the return of CSI convertible bonds in the next six months is regressed. When the market is in a low-price and low-valuation range, the expected return of CSI convertible bonds in the future is higher. In the next six months, the expected return of CSI convertible bonds is 6.76%, which shows that the current convertible bond market is in a low-price and low-valuation range, and the left-side configuration value is significant. In terms of specific varieties, Haitong Fund believes that in the future, it will tend to be low-priced, good-credit, and short-term varieties (within 3 years).