Eighty percent of the debt base loss in the month, the most injured is the convertible bond fund, will the adjustment continue

Cai Lian News Agency, September 27 (Reporter Li Lujia) Recently, the wind direction of the bond market has changed, and the convertible bond market has encountered a flash crash of individual bonds. The data shows that since the beginning of this month, the bond fund index has shown a downward trend as a whole, with nearly 80% of the net value of the bond base having lost money, of which the convertible bond fund has even suffered a large drawdown, and the net value has been exhausted.

Wind data shows that the 69 convertible bond funds included in the statistics have not had positive returns since September, with an average decline of -1.75%. Recently, many convertible bonds have staged a "roller coaster" market. On September 25, BAHEAL closed at 129.97 yuan, down nearly 46% in just five trading days compared with 240.675 yuan at the stage high on September 19. Institutional sources believe that the decline in the current round of bond market is the result of the combined effect of policy, capital and fundamentals. Among them, factors such as rising bond market yields, sluggish equity markets and strong redemptions of individual bonds affected the performance of the convertible bond market.

However, under the deduction of asset shortage, there are still views that continue to emphasize the allocation value of current position convertible bonds. In fact, statistics show that in the second quarter of this year, the first and second tier bond bases increased their positions in convertible bonds significantly, and as of the end of the second quarter, the overall position of the fund holding convertible bonds and the position of the convertible bond theme fund reached a record high. The higher institutional debt swap position is also expected to provide strong support for the maintenance of valuation of the debt swap.

Nearly eighty percent of the debt base was adjusted during the month

Data show that from August 31 to September 12, the bond fund index fell continuously, down 0.26%; The index then rebounded, but still fell 0.14% from August 31. Specifically, Wind data shows that since September, of the 5,538 bond funds (calculated separately for different shares) shown in the whole market, a total of 4,406 bond-based returns have been negative, accounting for nearly 80%. From the perspective of type, among the bond bases that have suffered a drawdown in this round, the number of medium and long-term pure debt funds is the largest, with a total of 2137. Specifically, Xiangcai Xinli pure bond A/C and Xingyin Changying fell by more than 1% in the three-month fixed opening C range.

However, from the perspective of decline, the most "injured" is the convertible bond fund, since the beginning of the month, Huaxia convertible bond enhanced A/C, GreenHongli A/C, Qianhai Kaiyuan Dingyu A/C and other ranges have fallen by more than 3%. The year's bond-based champion ICBC convertible bonds, which are currently leading the way with a yield of 18.69%, have also fallen by about 1.43% since September.

Huang Shiyuan, manager of ICBC Convertible Bond Fund, expressed cautious optimism in his second quarterly report, saying that bond yields and spreads are historically low, and that their value for money has been reduced given that bonds have priced in a weakening economy. "In the large class of assets, it is expected that the conversion of bonds is better than pure debt, but weaker than stocks, structurally, focusing on low premium rate low valuation debt conversion and medium premium rate medium valuation debt conversion, increasing bottom-up bond selection."

In fact, the main reason for the large-scale correction of convertible bond funds is the frequent flash crash of individual bonds in the convertible bond market in recent days. On September 25, BAHEAL closed at 129.97 yuan, down nearly 46% from the high of 240.675 yuan on September 19. On September 19, BAHEAL bonds rose to 14% intraday and then dived, closing at a drop limit price with an intraday amplitude of more than 30%; The next day, it opened low and went low, and fell again to the limit. From the perspective of the secondary market, the price of BAHEAL bonds continued to hover around 140 yuan, and at the end of August, a wave of sharp rises began, with an increase of more than 40% in more than 10 trading days.

Image source: Wind

The trend of BAHEAL bond conversion is also the epitome of the recent roller coaster market of similar products, and similar trends are frequently staged on many convertible bonds such as Xingrui Bond Transfer, Sky Rail Bond Transfer, and Nutai Bond Transfer. Many of the early bull tickets frequently encountered drop stops, and returned to the original point after a flash crash. Ruxingrui's bond has fallen more than 43.04% after touching 276 yuan intraday on September 11.

It is worth mentioning that most of the above-mentioned convertible bonds with "flash crash" are sub-new bonds (that is, convertible bonds within 6 months from the application date), and at the same time have the characteristics of high price and high conversion premium. Wu Xionghui, founder of Newda Investment, said that convertible bonds have the dual characteristics of stocks and bonds, essentially a bond plus a stock call option, and the core of excess return comes from the rise in the stock price of the underlying stock, in the context of the downturn in the equity market, the stock price of the listed company issuing the convertible bond continues to fall, driving the downward trend of the convertible bond market.

Against the above background, since the beginning of September, none of the 69 convertible bond funds included in the statistics have had a positive return, with an average decline of -1.75%. For example, since the beginning of September, there has been 2.04% of the financing convertible bond A, and the largest heavy bond as of the end of the first half of the year is Runjian Convertible Bond, which was recently redeemed by Runjian shares in advance, and the price in the secondary market also fell by more than 5% in the same period; The fund's second-largest heavy bond, Dragon Net Swap, has fallen nearly 5% since September, dragging down the fund's net value performance.

There is still configuration value

It is worth noting that after successive heavy declines, the current conversion premium rate of BAHEAL Convertible Bonds still reaches 46.30%, and among the total 549 convertible bonds in the A-share market, 59 have a conversion premium rate of more than 100%.

Some industry insiders said that the volatility of convertible bonds is mostly smaller than that of the underlying stock. However, due to the T+0 trading of convertible bonds and the no limit on ups and downs, coupled with the fact that some funds are lured more in the operation of convertible bonds, market sentiment has been promoted, resulting in many convertible bond prices rising sharply from the underlying stock. Some convertible bonds have a heavier speculative atmosphere, such as high-priced, high-swap premium bonds, because the protection of the debt base is weak, once the company is forced to redeem, investors will face greater risk of loss. However, because the relative performance is not weaker than the equity market, and there is a safety cushion for the bond itself, it is favored by most investors, and it also makes investors have the misunderstanding that the risk of investing in bonds is low.

However, many views have pointed out that convertible bonds are supported by the debt floor in the equity bear market, and the bull market follows the rise of the underlying stock, which is a friend of absolute returnees. From the cumulative data of 5 years (2018-2022), the cumulative yield of the CSI-to-bond index is 38.8%, which is much larger than the -3.95% of the CSI 300 in the same period.

Zhao Duanduan, fund manager of Honde Fund, said that the liquidity environment in the first half of 2023 was relatively friendly, and the institutional debt conversion position was high under the interpretation of asset shortage, which provided strong support for the valuation of bond conversion to remain high. Looking forward to the second half of the year, the valuation of the convertible bond may continue to fluctuate in a narrow range, with the performance of the equity market, mainly the structural market. Maintaining a dynamic and positive allocation from an overall portfolio perspective is expected to still contribute to optimizing portfolio earnings.

On the one hand, except for bank debt conversion, there are no obvious signs of compression in the valuation of debt conversion in other industries. The valuation logic, allocation appeal, and fundamental analysis methods of bank debt conversion are obviously different from those of other industries, and the stock accounts for a relatively large proportion, which causes a certain degree of bias in analyzing the valuation changes of this round from the broad-based valuation caliber. On the other hand, from the perspective of technical indicators, there may already be some bottom signals in the valuation of the convertible debt.

TF Securities believes that in terms of allocation, the valuation of this round of partial stock conversion is relatively sufficient, especially the varieties with a parity of more than 100 yuan are already at a historical low, or you can follow the clues of industry beta to focus on underestimating opportunities. In terms of sectors, it is recommended to pay attention to the strengthening of nonferrous metals, coal and other commodities; The "Golden Nine Silver Ten" consumption season and the recovery of social zero in August bring opportunities for the repair of the consumer sector; underestimated opportunities in electronics, pharmaceuticals and other sectors.

Liu Yu, chief analyst of fixed income at GF Securities, stressed that as economic fundamentals stabilize and pick up, the pressure on foreign capital outflow has slowed down, and the risk appetite and liquidity margin of underlying stocks may improve. "Looking back at history, even if interest rates rise, as long as there is no significant redemption shock, the high-equity varieties in the convertible bond market will still perform well in the follow-up supported by the recovery of the underlying stock. At the same time, considering that the underlying stock is currently in the bottom shock stage, with high dividend varieties as the bottom position, the dumbbell strategy of earning flexible returns through small and mid-cap growth varieties can be prioritized."

This article originated from Cai Lian News Agency reporter Li Lujia