Debon Securities: In October, the performance of small and medium-sized caps was generally stronger than large caps, driving the convertible bond index to also rebound in sync.

Denon Securities released a research report stating that the performance of small and medium-sized caps was overall stronger than that of large caps last week, driving the convertible bond index to recover in sync. However, the issue of valuation/price median suggests that there may be some differentiation in the performance of convertible bonds in this round of rebound. Specifically, the enthusiasm for convertible bond allocation in October has converged, with market concerns growing about uncertainties. Looking ahead, the stabilization trend of equities is gradually emerging, opening up space for trading-oriented convertible bond assets during the 5-month performance announcement window, and the bullish trend of convertible bond varieties is expected to gradually become apparent. Therefore, the view of maintaining an increased allocation of flexible varieties, focusing on dual-low targets, is recommended. Key Points of Denon Securities: Last week's market trading mainly revolved around changes in domestic and foreign policies and their corresponding industry directions. At the index level, the China Securities Convertible Bond Index broke through and closed up by 2.16% for the week, while the Shanghai Composite Index/Convertible Stock Weighted Index rose by 5.51%/5.18% during the same period, with the convertible bond market following the equity market in a continuous upward trend. In terms of style, aside from the strength of low-rated/low-priced indexes last week, high-priced/high-price low-premium indexes also showed relative strength, with fluctuations in the index exceeding 3%. At the industry level, aside from military industry convertible bonds, TMT convertible bonds also showed relative strength. In terms of valuation, the weighted convertible bond-to-stock premium rate in the 90-110 parity range still remains at 17%, with the corresponding range median price at 117, overall relatively stable. Market concerns: the form in which policies are implemented, the disturbance of strong redemption of convertible bonds, and signals of debt-side outflows. Specifically, in October, the enthusiasm for convertible bond allocation has waned, mainly due to market concerns about the following uncertainties: 1) Regarding policy concerns, both domestic and foreign policies were at a critical juncture at that time. Internally, the market was concerned about the extent of fiscalization of debt by the National People's Congress, while externally, the progress of the U.S. presidential election and the policy orientation of the two parties also had a certain impact on export-related varieties in the supply chain. 2) Regarding the disturbance of strong redemption, as convertible bonds followed the equity market in rapid recovery, concerns about the terms of the conversion shifted quickly from capital reduction/call back/sell back to strong redemption prompting conversion. After experiencing the difficulty of regular conversion promotions in the past year, the market is worried that listed companies may be more eager to take advantage of the opportunities for strong redemption in this round. 3) On the debt side, at the beginning of October, index ETF products were still dominated by subscriptions, with a relatively less active feeling among fixed income + debt-side capital inflows. For convertible bond varieties, it is more important to look ahead than to look back, as the current period may be a window of opportunity for increased allocation of varieties. As important events unfold, the market's previous concerns may gradually ease. 1) Regarding the external environment, policy uncertainties are coming to a head, with domestic support totaling 10 trillion for debt support, and overseas events including the outcome of the U.S. election with a potential victory for Trump; 2) Regarding the debt side, the convertible bond ETF scale has turned to net outflows, and this round of profit-taking may have the opportunity to push the debt side to reconsider the active allocation cost-effectiveness; 3) In terms of equity support, short-term liquidity may be slow to contract, providing strong support for the small and medium-sized cap style; 4) Lastly, on the convertible bond side, the impact of strong redemptions on convertible bonds may be easing, with the focus shifting from defense against last-minute conversions to early participation in conversions. The actual pressure of net selling may be weaker than before, and the turnover of supply side old and new varieties may also drive the secondary distribution of chips. Looking ahead, the stabilization trend of equities is gradually emerging, opening up space for trading-oriented convertible bond assets during the 5-month performance announcement window, and the bullish trend of convertible bond varieties is expected to gradually become apparent. Investment Recommendations: (1) In the short term, the equity market may be simultaneously impacted by external environment and domestic policy turning points. Focus on opportunities related to "Trump trading" under the premise of national self-controllable/domestic substitution, such as Europe Communications convertible bonds, Huicheng convertible bonds, etc., while also focusing on industries boosted by the implementation of debt policies, such as Shanlu convertible bonds; (2) The performance window + abundant liquidity is conducive to theme trading of flexible varieties, focusing on convertible bonds in industries that may be catalyzed by future mergers and reorganizations, Tesla chain, low altitude, humanoid Siasun Robot & Automation, etc., such as Haoneng convertible bonds/Hao 24 convertible bonds, Fuxin convertible bonds, etc.; (3) Focus on cyclic stocks benefiting from improved domestic demand and fundamentals, including consumer, farming sector varieties, such as Hefeng convertible bonds and others. Risk Warning: Higher-than-expected changes in convertible bond issuance; unexpected fluctuations in convertible bond market liquidity; higher-than-expected changes on the debt side.