Morning Commentary: ZTO falls, Pinduoduo weaker as sell-off in Asian names intensifies

By Abigail W. Adams

Portland, Me., Oct. 24 – The convertibles of China-based companies were in focus and under pressure on an otherwise quiet morning in the secondary space after Xi Jinping solidified his power at the China Communist Party Congress.

ZTO Express’ recently priced 1.5% convertible notes due 2027 saw outsized losses on an outright basis and contracted dollar-neutral as investors braced for the entrenchment of Jinping’s policies, which have thrown China’s tech sector into a tailspin.

The 1.5% convertible notes sank 8.625 points outright with its American Depositary Shares down 18%.

The notes were changing hands at 83.625 versus an equity price of $17.87 early in the session.

They contracted about 1 point on the move down.

There was $6 million in reported volume.

ZTO’s equity was trading at $17.53, a decrease of 18.40%, shortly before 11 a.m. ET.

Pinduoduo Inc.’s 0% convertible notes due 2025 were also weaker.

The 0% notes fell 2 points outright to an 88-handle.

They were seen at 88.375 early in the session with the yield at 10.5%, according to a market source.

There was $3 million in reported volume.

Pinduoduo’s equity was changing hands at $41.81, a decrease of 29%, shortly before 11 a.m. ET.

Pinduoduo’s 0% convertible notes have long been busted and largely trade for their yield with the notes fitting the bill of the short-duration, high-yield notes investors have sought out.

The notes are putable at par on Dec. 1, 2023 and held last week as the broader ADR space fell in anticipation of the results at China’s Party Congress.

While an attractive yield, the notes carry the risk of the put being honored, sources said.

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