Zheshang Securities: The high-volatility pattern in the convertible bond market is expected to continue. Recommended to allocate to dividend convertible bonds.

Key Takeaways

Under ongoing internal and external shocks, market risk appetite continues to decline. The high-volatility pattern in the convertible bond market is likely to persist. It is recommended to allocate dividend-focused convertible bonds as a core holding, and to make a measured positioning in undervalued underlying names to bet on a partial, temporary rebound.

With constant internal and external disruptions, convertible bonds fall again

Over the past week (2026/03/30~2026/04/03, same below), Middle East geopolitical conflict continued to disrupt the market. In addition, the market entered the earnings verification window, and the decline in risk appetite led to synchronous adjustments between convertible bonds and equity markets. The convertible bond benchmark index fell 0.64%, a smaller drop than the mid-cap (-2.1%) and small-cap indices (-1.2%). The high-price index dropped sharply by 4.3%, and overvalued names continued to face sustained pressure. On the overseas front, the Middle East geopolitical conflict continued to intensify. Trump’s remarks related to the Iran issue reduced the market’s expectations for a ceasefire. Supply constraints for energy may shift into a medium- to long-term disruption factor. In the short term, the logic of a stagflation trade is difficult to break, and global risk assets were broadly under pressure. In China, the A-share market entered a concentrated disclosure period for annual reports and quarterly reports. Market sentiment became more cautious. Investors generally waited for further clarification from fundamental data, and both equity and convertible bond trading volumes noticeably shrank. Based on valuation, the convertible bond market’s valuations were already at historic highs earlier. Although there has been a sizable pullback recently, they still have not returned to a reasonable range. There is insufficient margin of safety. It is recommended to maintain a defensive approach, focus on high-dividend and stable-earnings underlying names, and avoid high-priced, high-valuation, high-volatility names.

As the market retraces, the allocation strategy should focus on defense

Over the past week, the convertible bond market saw volatile and divergent performance. It is recommended to maintain a defensive strategy. According to the backtesting results of the convertible bond quantitative model from Founder Securities (Zhejiang) (ZBSC), as of 2026/04/03, the convertible bond market overall displayed a pattern of structural volatility and divergence over the past week, with significant differences in the internal trajectories of each style factor. In terms of the momentum style, the “Jin 25 Convertible Bond” (金25转债) in the copper industry performed relatively actively, rising +2.04% over the week. Meanwhile, “WeiDao Convertible Bond” (微导转债) and “LiuGong Convertible Bond 2” (柳工转2), which are also in the momentum style, faced clear downward pressure, falling by -4.60% and -4.75%, respectively. Within the price-volume correlation style, there were also sharp fluctuations: the “Hongtu Convertible Bond” (宏图转债) in the software services sector saw a significant weekly adjustment of -12.08%, while “Shanhe Convertible Bond” (山河转债) in the chemical and pharmaceutical sector recorded positive returns of +1.34%. Overall, over the past week the convertible bond market exhibited the features of structural divergence and switching between high and low valuations. The market lacked a one-way trend, and competition among capital across different sectors intensified. Some high-level mechanical names continued to release valuation pressure, while certain names with deeper drawdowns or defensive characteristics began to attract capital attention. It is recommended that investors, in the current volatile market, maintain a neutral-to-defensive allocation strategy; avoid crowded names with high ZL deviation; make a measured focus on value-dislocated names that have basic fundamental support and whose ZL deviation is at a very low level; and wait patiently for opportunities for valuation repair.

Allocate dividend-focused convertible bonds to address the downturn in risk appetite

Looking ahead, with multiple internal and external disruptions, market risk appetite is likely to remain at a low level. The equity market lacks clear directional guidance, making dividend-focused convertible bonds a better choice for dealing with the current volatile environment. With risk appetite constrained by both internal and external factors, and based on historical experience, during periods when risk appetite declines, the dividend/low-volatility style usually outperforms growth styles. Mapped to convertible bond strategies, there are still no clear signs of market stabilization. It is recommended to maintain a reasonable position size. On the defensive side, the key focus should be dividend-style convertible bonds. These underlying names rely on the stable characteristics of the issuing shares and also benefit from the debt-floor protection of the convertible bond, giving them stronger downside resistance and providing steady support for a portfolio. On the other hand, make a measured allocation to undervalued underlying names to capture capital gains from a partial, temporary rebound in the market.

Risk Warning: 1）Insufficient improvement in economic fundamentals; 2）Tightening domestic liquidity; 3）Overly unexpected overseas risk events; 4）Historical experience does not represent the future.

（Source: Zhejiang Securities）