Commentary

March 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.

Most Asian bond markets managed to gain in March 2017 amid a widely expected US Fed rate hike. Indonesian bond market was the top performer while the Philippines and China bond markets were the only 2 markets which fell for the month. The Markit iBoxx ABF Pan-Asia Bond Index rose +0.63% on an unhedged basis, in US dollar terms, and rose +0.17% on a USD hedged basis.

During the month, Chinese bonds edged down by -0.08% in USD terms. March manufacturing Purchasing Managers Index (“PMI”) rose to 51.8. February growth indicators were mixed: Imports (+38.1% Year over year (“YOY”)) surged amid higher commodity prices while exports fell -1.3%. Consumer Price Index (“CPI”) eased to +0.8% YoY but Producer Price Index (“PPI”) rose further to +7.8% against a low base. Meanwhile, both new loans and new total social financing fell due to seasonality. In terms of January-February combined year-over-year readings, industrial production (+6.3%) and FAI (+8.9%) picked up while retail sales (+9.5%) softened.

Hong Kong fixed income market climbed by +0.5% in dollar terms for the month. Carrie Lam was elected as the new Chief Executive for HK. 4Q16 lagging PPI accelerated to +4% YoY and industrial production decline narrowed to -0.8%. March PMI improved to 49.9. February exports surged by +18.2% YoY, led by exports to Asian markets. Finally, February CPI dropped by -0.1% YoY on LNY effect and a high comparison base and unemployment rate stayed at 3.3%.

The Singapore fixed income market rose +0.58% in USD terms. March PMI improved to 51.2 with electronics sector index rising to 51.8. February industrial production increased by +12.6% YoY and Non-oil domestic exports surged +21.5% YoY with electronic shipment jumping +17.2%. January retail sales improved to +2% YoY (same if excluding auto sales). Finally, February headline CPI inched up to +0.7% YoY.

Korean bond market advanced by +0.89% in USD amid continuing won strength. 4Q16 Gross Domestic Product (“GDP”) was revised up to 2.4% YoY. March exports continued double-digit growth (+13.7% YoY) with broad based improvement and February industrial production jumped to +6.6% YoY. Finally, March CPI climbed to +2.2% YoY.

Malaysian bonds rose +0.24% in aggregate. The Bank Negara Malaysia held overnight policy rate at 3% and expected core inflation to increase modestly. January exports continued to see double-digit growth (+13.6% YoY) while industrial production moderated further to +3.5%. February CPI jumped to +4.5% YoY caused by higher transport and food prices.

Thai bonds rose +1.76% in USD led by a stronger baht. The Monetary Policy Committee kept the policy rate unchanged at 1.5% to facilitate the continuation of economic growth. February exports moderated to +0.73% YoY. Meanwhile, March CPI eased +0.76% YoY due to decline in fuel and food prices.

Indonesian bond market jumped by +3.38% in dollar terms. The 10 year government bond yield eased to 7.04% as of 31 March, 2017. Bank Indonesia held interest rates at 4.75% and focus switched from demand to inflation management. February CPI fastened to +3.8% YoY while exports moderated to +11.2% due to decline in shipments of coal and metal ores. On the other hand, the Philippine bonds dropped by -1.67% in USD. The BSP kept policy rate unchanged at 3%. February CPI accelerated to +3.3% YoY and January exports surged by +22.5% YoY.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 March 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 31 March 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: 31 March 2018