Commentary

June 2017

Important Risk Disclosure for PAIF

  • ABF Pan Asia Bond Index Fund ("PAIF") is an exchange traded bond fund which seeks to provide investment returns that corresponds closely to the total return of the Markit iBoxx ABF Pan-Asia Index ("Index"), before fees and expenses, and its return may deviate from that of the Index.
  • PAIF primarily invests in local currency government and quasi-government bonds in eight Asian markets, comprising of China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore and Thailand.
  • Investment involves risks, including risks of exposure to bonds in both developed and emerging Asia markets. Investors may lose part or all of their investments.
  • PAIF is not "actively managed" and will not try to "beat" the market it tracks.
  • The Executives' Meeting of East Asia and Pacific Central Banks group (the "EMEAP") member central banks and monetary authorities are like any other investors in PAIF and each of them may dispose of their respective interest in the Units they hold. There are no guarantees that the EMEAP member central banks and monetary authorities will continue to be investors in PAIF.
  • The trading price of PAIF may differ from the underlying net asset value per share.
  • PAIF may not be suitable for all investors. Investors should not invest based on this marketing material only. Investors should read the PAIF's prospectus, including the risk factors, take into consideration of the product features, their own investment objectives, risk tolerance level etc and seek independent financial and professional advices as appropriate prior to making any investment.

Asian bond market managed to gain in June amid a widely expected rate hike by the US Fed. China's bond market became the best performer as Hong Kong-China bond connect (northbound) will start in July. On the other hand, Korean bond market was the worst performer. The Markit iBoxx ABF Pan-Asia Bond Index rose +0.28% on an unhedged basis, in US dollar terms, while rose +0.46% on a USD hedged basis.

During the month, Chinese bonds gained +1.7% in USD terms. June manufacturing Purchasing Managers Index ("PMI") rose to 51.7. May growth momentum was mixed: Exports strengthened to +8.7% mainly driven by strong capital goods exports. Imports accelerated to +14.8%, pointing to still-firm domestic demand. Industrial production (+6.5%) and retail sales growth (+10.7%) were unchanged while Fixed Asset Investment ("FAI") (+8.6% YTD) weakened on tighter financial conditions. Consumer Price Index ("CPI") rose +1.5% on easing food price deflation while Producer Price Index ("PPI") eased to +5.5% on lower commodity prices. Finally, M2 growth slowed further but outstanding loans and total social financing growth remained broadly stable.

Hong Kong fixed income market edged down by -0.8% in dollar terms. The lagging 1Q17 PPI accelerated to +4.2% Year over year ("YOY") and industrial production improved to +0.2%. May exports grew moderately by +4% YoY, mainly supported by exports to major Asian markets. Retail sales growth picked up (+0.5% YoY) in May driven by improved tourist spending growth, while local consumption remained resilient. Finally, May CPI was unchanged at +2% YoY and unemployment rate stayed at 3.2%.

The Singapore fixed income market rose +0.55% in USD terms. June manufacturing PMI inched up to 50.9 while electronics sector index slowed to 52.1. May industrial production moderated to +5% YoY and Non-oil domestic exports (-1.2% YoY) weakened further despite a surge in electronic shipment growth. April retail sales jumped to +2.6% YoY (+4.9% if excluding auto sales). Finally, May CPI climbed to +1.4% YoY.

Korean bond market dropped by -1.79% in USD led by a weaker won. June exports accelerated to +13.7% YoY on broad-based improvement while May industrial production slowed further to +0.1%. Finally, June CPI moderated to +1.9% YoY.

Malaysian bonds fell -0.18% in aggregate. April exports stayed firm at +20.6% YoY while industrial production moderated to +4.2%. May CPI moderated to +3.9% YoY as retail fuel prices fell.

Thai bonds rose +1.19% in USD mainly driven by bond local price increase. May exports accelerated to +10.6% YoY while June CPI fell -0.05%, negative for the second month in a row.

Indonesian bond market gained +1.1% in dollar terms. The 10 year government bond yield eased to 6.83% as of 22 June, 2017 ahead of the country's public holidays. Bank Indonesia held reverse repo rate at 4.75% and expected some improvement in 2Q GDP growth. May CPI rose +4.3% YoY boosted by higher electricity tariffs and food prices and exports surged by +24.1%. Meanwhile, the Philippine bonds fell -0.11% in USD. The BSP kept its overnight borrowing rate at 3%. May CPI eased to +3.1% YoY and April exports slowed to +12.1%.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 30 June 2017.

This document is issued by State Street Global Advisors Asia Limited ("SSGA") and has not been reviewed by the Securities and Futures Commission of Hong Kong.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The views expressed in this material are the views of SSGA only through the period ended 30 June 2017 and are subject to change based on market and other conditions.

This document may contain certain statements deemed to be forward-looking statements. All statements, other than historical facts, contained within this document that address activities, events, or developments that SSGA expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by SSGA in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes appropriate in the circumstances, many of which are detailed herein. Such statements are subject to a number of assumptions, risks, uncertainties, many of which are beyond SSGA's control. Please note that any such statements are not guarantees of any future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and SSGA shall have no liability for decisions based on such information.

Past performance is not a guarantee of future results.

Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income.

International government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

Investing involves risk including the risk of loss of principal.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates rise bond values and yields usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing in foreign domiciled securities may involve risk of capital loss from unfavorable fluctuation in currency values, withholding taxes, from differences in generally accepted accounting principles or from economic or political instability in other nations.

Investments in emerging or developing markets may be more volatile and less liquid than investing in developed markets and may involve exposure to economic structures that are generally less diverse and mature and to political systems which have less stability than those of more developed countries.

This document may not be reproduced, distributed or transmitted to any person without express prior permission. This document and the information contained herein may not be distributed and published in jurisdictions in which such distribution and publication is not permitted.

The Markit iBoxx ABF Pan-Asia Index referenced herein is the property of Markit Indices Limited and is used under license. The PAIF is not sponsored, endorsed, or promoted by Markit Indices Limited or any of its members.

iBoxx is a registered trademark of Markit Indices Limited, a wholly-owned subsidiary of Markit Group, and may not be used without the owner's written permission. A license is required to refer to or use any Markit iBoxx index in any financial products.

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IBGAP-3476 Expiry Date: 30 June 2018