Zhongtai: Maintain low positions in convertible bonds and wait for right-side trading; allocation timing may be postponed to late October.

Zhongtai released a research report stating that the low-position state for convertible bonds should be maintained, waiting for the right-side trading opportunity after changes arrive. In this dimension, appropriately participating in selected individual bonds from the bottom up may be more comfortable than making bold top-down moves, and the allocation timing may be postponed to late October. For convertible bond portfolios, it is recommended to focus on: 1) Active promotion of conversion: Jingrui, Huitian, Zhengyuan, etc.; 2) Varieties with improving industry trends or favorable positioning of individual bonds, such as minor metals (Zhen 26, Saisi), innovative drugs (Tebao), medical devices (Sanxin), Pioneer (semiconductor equipment), Yunjii, etc.; 3) Recovery opportunities brought by theme rotation, such as energy storage, power grids, innovative drugs, etc., following the sentiment recovery in Jinyang, Shangtai, Weixin, Changgao, etc. Around the National Day holiday, the convertible bond index continued its low-volume adjustment process, only forming an intraday V-shaped reversal on Friday in tandem with the equity index. Overall, over the 5 trading days, the convertible bond index fell 1.34%, while the equal-weighted index of underlying stocks fell 2.23% over the same period. In terms of style, high-price/low-price styles diverged, with high-price bonds undergoing more overall adjustment, and the premium rate on 100-yuan bonds still in a compression process. By industry, TMT convertible bonds adjusted significantly over the 5 trading days, while sectors in consumer and mid-to-downstream manufacturing saw some recovery, indicating a shift in market style. At the ETF level, convertible bond ETFs generally saw small net outflows over the 5 trading days, while the SSE Convertible Bond ETF turned to net inflows. External disturbances are relatively complex, and the equity market's upside participation remains limited against the backdrop of trading activity that has not yet recovered: 1) During the holiday, oil prices returned above $100, the U.S. side's tone on crude oil changed, and short-term high-level pressure on oil prices remains considerable; 2) U.S. Treasuries came under pressure from non-farm payroll data, and with the probability of an October rate hike falling, U.S. Treasuries still broke new highs during the holiday, with the 30-year U.S. Treasury yield touching above 5.6%; 3) Over the same period, the Nasdaq decoupled somewhat from U.S. Treasuries, maintaining a short-term upward trend, as overseas tech companies remain in a positive feedback loop of earnings expectations and capital expenditure; 4) Domestic holiday trading volume declined, and after tech's first-half outperformance and subsequent pullback, the market became more sensitive to negative events in the short term (FCC, overseas research reports discussing optical module controls, etc.), leading to a sharp correction after the holiday. Overall, after passing key September nodes (U.S.-Iran, China-U.S., etc.), since the narrative has not yet changed significantly (oil prices still high, U.S. Treasury pressure, etc.), the short-term market is still waiting for sentiment to reverse, because under defensive considerations more attention is being paid to marginal changes in policy and industry narratives, such as real estate, the "six networks," etc. For convertible bond participants, sentiment seems to have entered a state of "being swept along" in adjustment and repositioning, with the premium rate undergoing continuous compression. Zhongtai believes this mainly stems from the unresolved "two relative valuation" issues: 1. Relative to pure bonds allocation, the medium-term bullish logic for pure bonds has not yet changed. The pre-holiday pullback in pure bonds mainly came from profit-taking after earlier acceleration. Although there are still some micro-level trading disturbances, they still provide an extremely generous safety cushion in this year's fixed income+ portfolios, especially since September (medium- and long-term bond funds averaged 0.36% returns, while secondary bond funds were -1.13% over the same period, based on products issued before the end of last year). If the consideration of stock-bond relative valuation was still quite tangled in August, with the scissors gap widening, the market has to acknowledge that the enhanced (equity + convertible bond) portion requires more refined operations. 2. Furthermore, in the relative valuation between stocks and convertible bonds, convertible bonds' short-term cost-effectiveness is also relatively limited. Looking at the convertible bond index performance so far this year (even though full-year returns have already turned negative), convertible bonds to some extent completed the task of return enhancement before Julycompleting style enhancement and valuation expansion in the first half, and in July through style switching, low-price varieties also became profitable. When the variety's responsibilities have been fully exhausted, and the variety begins to follow adjustments and compression, convertible bonds once again confirm Zhongtai's positioning at the beginning of the yeara phased sharpness tool. Therefore, compared to historical percentiles, convertible bonds need the combined force of equity and liability sides, as well as gradual supply improvement, to ultimately jointly form a new steady-state premium rate, rather than simply discussing whether a "30%" premium is reasonable. Are the varieties completely useless? Some marginal improvements are being seen, and they do not entirely come from the logic of "having to allocate": 1. The low-price index has short-term returned to the bottom of its range again, and demand such as bond floor support may have some similarity to recent considerations for dividend sectors; 2. High-price variety premium rates have fallen, and the standard deviation has also declined over the same period (in early September, due to clause gaming, the standard deviation of high-price premium rates temporarily rose, and gradually fell back as trading progressed), which means that as premium divergence clears, short-term consensus may also be in the process of being rebuilt. Therefore, Zhongtai believes that in the process of marginal changes, timing shifts may become a catalyst for sentiment stabilization. At the current juncture: 1) Q3 earnings will be announced at a relatively fast pace, basically starting in late October; 2) The Federal Reserve meeting, including subsequent midterm elections, will be settled successively in October-November; 3) Pure bond assets may repeatedly test highs and pull back in the process of front-running policy easing, forcing everyone to reassess operational difficulty and relative valuation cost-effectiveness in mid-Q4; 4) Terms of some core bonds will be finalized.