Entering the new year, the A-share market is depressed, but the convertible bond market is still hot.
The convertible bond market is not only arrogant in the price of the secondary market, but also almost exclusively touches the “word board” of the trading limit.
The high valuation of convertible bond market is attracting attention from all parties. The data show that the phenomenon of overvaluation in the convertible bond market has become increasingly obvious. Not only the absolute average price has approached 150 yuan, but also the conversion premium rate, the core index to measure the valuation, has rushed to a high level of 35%.
This means that the overall valuation of convertible bonds is 35% higher than that of positive shares. This is a rare phenomenon of high valuation in the history of convertible bond market.
Yu Miao, fund manager of Xingquan convertible bond fund, China’s first convertible bond fund, said that the current overvalued value of convertible bonds reflects the imbalance between supply and demand to a certain extent and the high expectations of the market for the equity market.
This also reflects that the fixed income market is facing the challenge of “asset shortage”. It is noteworthy that the overvalued value is reducing the cost performance of convertible bonds, which also brings the vulnerability of the market.
valuation rose to a rare historical high
At the beginning of 2022, there are no varieties with a face value of less than 100 yuan in the convertible bond market.
“There hasn’t been such a high-profile market for many years. Although there have been similar markets around 2015, the market capacity was small at that time, which is different from today’s market scale.” A chief analyst of securities firm fixed income told reporters.
In his opinion, this market is going through a big era!
The price of convertible bonds collectively stands at the above value. Behind it is the continuous improvement of the focus of the whole market. Data show that the average price of the latest convertible bonds is 148 yuan, much higher than in previous years. At the beginning of last year, the figure was 128 yuan, while at the beginning of 2019, it was only 96 yuan.
The absolute price of convertible bonds is rising, and the valuation indicators are also rising. At present, the average conversion premium rate of the whole convertible bond market has reached 35%. This means that buying convertible bonds is 35% more expensive than buying stocks. The conversion premium rate is a typical index to dynamically measure the valuation.
This is almost impossible for many traditional investors.
The overall high valuation of the market also affected the sentiment of the new bond market. From the perspective of many new bonds listed this year, the conversion premium rate is as high as 35% on average. Tailin convertible bonds rose 43% on the first day of listing, and the conversion premium rate was as high as 50%.
The “one-dimensional board” of the opening of new convertible bonds has almost become a standard configuration, which is independent of the positive stock market. Patty convertible bonds and Taiwan 21 convertible bonds listed on Friday all soared to a 30% rise, fusing the red line.
Affected by the hot market sentiment, the number of new investors in convertible bonds increased step by step. Data show that at the beginning of last year, only 7 million investors participated in the innovation, and now the number has risen to 11 million.
two major drivers of overvaluation
“We are also concerned about this phenomenon. The essence of this phenomenon is that the scale of convertible bonds is relatively limited.” A chief analyst of securities firm fixed income said so.
With the upgrading of refinancing policy in 2017, the convertible bond market has ushered in a period of great development. According to the data, nearly 200 convertible bonds were issued in 2020 and 127 convertible bonds were issued in 2021, with an annual financing scale of about 240 billion yuan.
Although this scale is quite large compared with the past. However, compared with the huge configuration demand of the market, it is still in short supply.
In recent years, the “fixed income plus” strategy of asset management products has prevailed, and convertible bonds have become an important target for the allocation of many fixed income products. According to the statistics of China Merchants Securities Co.Ltd(600999) , in the third quarter of last year, “fixed income +” products stood out in the fund market, and the scale of stock products reached 2.18 trillion yuan.
The so-called “fixed income +” refers to a strategy of adding other relevant assets to enhance the income of fixed income products on the basis of fixed income products. As a combination of stocks and bonds, convertible bonds have always been known for “no ceiling at the top and minimum guarantee at the bottom”, showing the characteristics of low pullback and stable yield. Therefore, in the past year, bond funds have become the core and main force of convertible bond holdings.
Xia Pengfei, deputy general manager of Financial Research Department of BOCOM, said that due to the continuous decline of traditional bond yield, the pure bond yield is difficult to meet the requirements of investors, so the “fixed income +” product will configure convertible bonds to thicken the yield.
The evolution of game strategy is also considered to be the driving force behind market overvaluation. Yu Miao said that in addition to the large-scale allocation of “fixed income +” products by financial funds and other factors, the overvalued value of convertible bonds is also related to the fact that many convertible bonds chose not to redeem in advance last year. This has led to an increase in the proportion of convertible bonds with high price and high premium.
All convertible bonds have early redemption clauses. Generally speaking, when the company’s share price is 30% higher than the conversion share price for about 20 trading days, the listed company will have the right to redeem the convertible bonds. “The completion of redemption means that convertible bonds can be delisted and delisted. However, since last year, the number of cases of non early redemption has been increasing, which provides a more sufficient time window for funds to participate in convertible bond investment for a long time.” A chief analyst of securities firm fixed income said.
Data show that last year, nearly 100 companies chose not to redeem convertible bonds in advance. Previously, this situation rarely occurred on a large scale.
under the high level, the risk is hidden?
When the valuation of 382 convertible bonds was at an all-time high, many institutions began to worry about potential adjustments.
“The safety margin of 100 yuan purchase and 150 yuan purchase is different.” A chief analyst of securities firm fixed income said that due to the existence of overvalued value, the competitiveness of convertible bonds is being discounted.
He believes that, on the one hand, with the high volatility of the stock market, the volatility of the convertible bond market shows signs of amplification. On the other hand, compared with convertible bonds and positive stocks, its winning rate is much lower than before. If the future liquidity tightening and “fixed income +” strategy fails, the overvalued value of convertible bonds may be reversed.
Data show that the current average price of convertible bond market is 148 yuan. Among the 382 convertible bonds, 292 were priced above 120 yuan, while only 88 were priced below 120 yuan.
China International Capital Corporation Limited(601995) believes that although convertible bonds can remain overvalued, they also need to realize the high return implied behind the high valuation as soon as possible. As the maturity approaches, the premium rate of high priced varieties will eventually approach zero, and the overvalued value will no longer exist.
Sun Hui, fund manager of Yinhua convertible bond fund, believes that the valuation of convertible bond market itself is an emotional indicator. When stocks rise, the valuation is difficult to be effectively compressed. Sun Hui believes that it is difficult to predict when the overvalued value of convertible bonds will converge and to what level. From experience, there are generally three signs of valuation convergence, including the upward trend of pure bond yield, the continuous tension of capital and the decline of stock market.
The relevant person in charge of Huihua financial management said that at present, the valuation of convertible bonds is indeed too high. The structural bull market in 2021 pushed up the valuation of convertible bonds, and the stock market may gradually repair the market in 2022.
Entering the new year, the market has begun to be nervous about the early redemption of convertible bonds. Last week, Org Technology Co.Ltd(002701) announced that orri convertible bonds may trigger early redemption terms. Affected by this, the company’s shares and bonds were extremely sensitive and both weakened.
