Three major factors down convertible bonds, short-term or continue to adjust

2022-07-21 0 By

Author | new media Jiang Jinli caijing editor 丨 Jiang Shizhou convertible bond wind mutations.On Feb. 14, the CSI convertible bond index fell 3.01 percent, the biggest one-day drop in nearly two years.On the whole, 97% of the convertible bonds fell, only 10 rose, and the decline was generally more than the main stock.Affected by the market drag, convertible bond funds bear the brunt of the collective decline in net value.According to Wind, 63 convertible bond theme funds fell an average of 2.5% in the February 14 sell-off, with 25 of them falling more than 3%.Only “Xin Yuan double debt enhancement” resist the decline, net up 0.01%.On February 15, the CSI convertible bond index fell another 1.52%. Combined with last Friday’s adjustment, the cumulative decline in three trading days exceeded 5%.According to Everbright Securities, there are three reasons for the drastic adjustment of the cb market: first, the market sentiment is weak, and negative information is easy to be over-amplified.Early in 2022, a-share market sentiment weak, survived the market adjustment, so investors point of view is given priority to with steady, slightly volatile markets could cause investors to sell or redeem decisions, especially market of some negative information in the case of weak market sentiment, will be multiplied, causing panic.Second, “fixed income +” fund or a large number of redemptions.From the comparison of the decline of the A-share market and the cb market, we can see that the adjustment of the CB market exceeds that of the A-share market.Therefore, the reason for this adjustment is not the adjustment of the CB market caused by the decline of the equity market, but the massive selling of investors in the CB market.Third, the high valuation and the uncertainty of strong foreclosure enhance the vulnerability of the cb market.High valuation reduces the cost performance of cb for equity assets, and meanwhile increases volatility. Marginal changes in equity market and pure bond market will greatly affect the highly valued bonds.At the same time, many high-priced convertible bonds have triggered strong redemption conditions, and have exceeded the “protection period” of not strong redemption. In the case of weak market, investors are not willing to bear uncertainty, so they will also choose to take profits and sell convertible bonds.The high valuation risk of cb has been predicted in the industry.Since September last year, Tianhong fund manager Du Guang many times in the discussion area of Alipay products prompt risk.For example, on November 04, 2021, Du Guang said bluntly on Alipay, “This is a convertible bond fund, brothers.Elasticity is big, fluctuation is big, when fall more sea han, suggest not to do band…”On November 19 and 22, 2021, Du Guang again reminded us of the risk of product volatility and advised us not to buy the convertible bond fund managed by du Guang.In the short term or continue to adjust the outlook of the market, Everbright Securities that: “in the short term, the adjustment is continuing.Investors are advised to control positions, reduce retracement and wait for the opportunity.”A fund manager in Shanghai also told Caijing New Media that it is expected that convertible bonds in the later stage may continue to fight the valuation process, because the previous premium rate is relatively high. “If the premium can return to the historical average, it may be a more balanced level, and then it depends on the trend of the stock market.Overall, this year’s short bond opportunities are weaker.Kaiyuan securities pointed out that a bigger problem in the cb market is whether the high premium can be maintained.Since 2021, the cb market has performed very well. Benefiting from the massive issuance of “fixed income +” products, some asset management products cannot directly invest in stocks and use CB as an alternative to stocks, leading to the continuous upward premium rate of cb market.As some listed companies give up redemption of convertible bonds, also led to a significant increase in high-priced convertible bonds.In the view of Open Source Securities, the high premium rate of cb is not a problem when the stock market is stable and the “fixed +” expansion period, but once the stock market continues to weaken and the flow of “fixed +” capital decreases, how to digest the high premium rate of CB becomes a problem and the cb group will face challenges.Open source securities mentioned that the recent stock market, bond market common features are crowded varieties of institutions fell more.In the stock market, track stocks fell larger;In the bond market, the crowded trading of 5-year interest rate bonds, perpetuities, tier 2 capital bonds fell more;Convertible bonds also began to fall more than stocks.There is consensus, which is fine, but when it comes to crowded trading and complete disregard for valuation, it becomes a problem.For the future market of cb, open source securities believes that the key lies in whether the stock can stabilize.If the underlying stocks continue to decline, the cb may face a “double kill” between the underlying stocks and the convertible bonds. “Given that the overall valuation of cb is still high, we maintain our view in December 2021 that the underlying stocks are better than the convertible bonds.”