Haitao Zang

In the short term, the market is mainly influenced by factors such as economic fundamentals, funding conditions and policies, resulting in a volatile market pattern. In terms of economic fundamentals, the overall economy is still in the process of gradual recovery. It is highly likely to achieve the economic growth target this year, and the main intention of front-loading fiscal measures in the fourth quarter is to boost the economy next year. However, the current recovery is still not solid, and consumer confidence needs to be restored. The early relaxation of real estate policies has narrowed the decline in sales, but real estate investment and land acquisition remain weak, and some real estate market players still face liquidation. The implementation of policies such as urban village transformation and affordable housing in the future can to a certain extent improve the weak situation in real estate market, but it will take some time. The prevention and resolution of local government debt risks have solved the problem of existing debt, but how to give more resources and vitality to local governments in terms of incremental debt still needs more policies. In terms of funding, unexpected liquidity tightness occurred at the end of October. While the overall monetary policy remains relatively loose, the disturbance to the market was relatively short-lived. In the future, with the approaching of month end and year end, banking institutions that lend funds may face regulatory constraints, and the funding situation may still be temporarily tight due to factors such as the supply of interest rate bonds. However, as long as funding rate revolve around the open market operation rate and liquidity remains reasonably moderate, the overall impact can be controlled. In addition, it’s possible to have interest rate cuts and reserve requirement ratio reductions in the fourth quarter.

Xin Tian

We hold positive outlook on convertible bond investment. The extreme percentile of stock-bond risk premium implies that investors are overly pessimistic about the economic fundamentals. The success rate and forward return rate are at relatively high levels. Convertible bond assets experienced significant volatility due to stock market shocks in the past month, and there is limited downside room for further decline. The core factor for the bottoming out of the convertible bond market is the bond floor protection. When convertible bonds have a strong bond nature, their sensitivity to stock market fluctuations is weaker. The yield-to-maturity of convertible bonds and the relative spread to pure bonds have become attractive. When the pure bond value of convertible bonds significantly increases, as it simultaneously includes stock call options, the capital in the bond market will continue to flow into the convertible bond market to provide support. The static premium rate and absolute price of small and medium-sized convertible bonds have shown rapid declines compared to large-cap convertible bonds, reaching historical levels in the past two years. Additionally, the volatility of small and medium-sized convertible bonds has rapidly increased, and the values of option gamma and vega have also increased significantly. Based on quantitative model option valuation analysis, the bond-type convertible bonds and balanced convertible bonds in electronics, semiconductor, automotive, computer, pharmaceutical and new energy sectors are undervalued, presenting higher investment value.