Aniket PujariThe animal spirits that sent Chinese stocks flying this year are spilling into convertible bonds issued from companies based in the country, with their notes leading the roughly $400 billion global market in both returns and trading volume.
The ICE BofA Asia Convertible Excluding Mandatory Index, which Chinese issuers comprise two-thirds of, has gained more than 10% this year. Meanwhile, an index of US convertible bonds has declined by around 1% and the global benchmark has posted a 3.7% gain. The momentum — driven by companies like Alibaba Group Holding Ltd and Xiaomi Corp — is fueled by growing optimism around artificial intelligence advancements.
Convertible bonds start as low-interest debt instruments, but can turn into equities if the share prices they are tied to rise enough. The Chinese outperformance in this market largely mirrors their relative strength in stock gauges, with the Nasdaq Golden Dragon China Index up 24% this year, compared to Nasdaq 100 Index’s 7% decline.
Amid the rally, Alibaba — which issued $5 billion worth of convertibles in May — has become the world’s most actively-traded name in the sector, according to a report from Bank of America Corp. citing TRACE data. Its trading volume is double that of Michael Saylor’s Strategy, the largest US issuer in recent years with about $10 billion outstanding in crypto-related paper.
Investors are increasingly embracing a wave of ADR convertibles, which are backed by Asian firms with US-listed shares. These offerings now comprise about 5% of global market, according to BofA.
Taken as a whole, the growing influence of Chinese convertible bonds make them “too big to ignore”, said Michael Youngworth, the bank’s head of global convertibles and preferred strategy.
“In the past, some US outright investors might have hesitated, but as these bonds have outperformed and make up for a much larger size of the market,” he said in an interview. “Investor participation is increasing.”
However, the asset class still faces risks, such as heightened geopolitical uncertainty from President Donald Trump’s tariff policies, Youngworth said. There’s still concern that Chinese issuers could be at risk if the White House revisits the threat of removing US-listed Chinese companies from American exchanges, he added.
This article was generated from an automated news agency feed without modifications to text.
