Commentary

February 2018

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 fell in aggregate in February amid weaker local currencies and rising bond yields. The Philippine bond market was the worst performer, followed by Indonesia. On a positive note, Both China and Hong Kong bond markets managed to gain for the month. The Markit iBoxx ABF Pan-Asia Bond Index fell -1.13% on an unhedged basis, in US dollar terms, and fell -0.24% on a USD hedged basis.

During the month, Chinese bonds rose +0.44% in USD terms. February manufacturing PMI slowed to 50.3 and January monthly releases on a YoY basis were somewhat distorted by different timing of Chinese New Year (CNY) between 2017 and 2018: Exports came in better than expected at +11.1% and imports surged to +36.9% amid different CNY timing. CPI edged down to +1.5% partially due to similar effect while PPI's decline to +4.3% pointed to a further easing in underlying price pressures. Finally, credit growth surged driven by seasonality.

Hong Kong fixed income market inched up by +0.07% in dollar terms. 4Q17 GDP rose +3.4% YoY, leaving the 2017 full-year growth at +3.8% versus +2% in 2016. January exports fell -3% YoY, with increases registered in exports to Asia as a whole but overwhelmed by decreases in exports to the UK and Germany. Retail sales grew moderately by +4.1% YoY in January, reflecting still robust consumption sentiment and distortion of different CNY timing according to HK government. Finally, January CPI and unemployment rate were unchanged at +1.7% YoY and 2.9%, respectively.

The Singapore fixed income market fell -2.34% in USD terms. The 4Q17 GDP growth was revised down to +2.1% QoQ though the 2017 annual growth (+3.6%) was still stronger than the previous year. February PMI eased to 52.7 with electronics sector index moderating to 52.1. Industrial production surged to +17.9% YoY in January and non-oil domestic exports (+13% YoY) surprised on the upside while electronics exports fell -3.9%. December retail sales rose +4.6% YoY (+0.6% if excluding auto sales). Finally, January CPI was flat.

Korean bond market fell -1.14% in USD dragged down by a weaker won. The Bank of Korea kept its policy rate on hold at 1.5%. January industrial production came in better than expected at +4.6% YoY while February exports slowed sharply to +4%. February CPI climbed to +1.4% YoY.

Malaysian bonds edged down by -0.46% in aggregate. The 4Q17 GDP slowed to +5.9% YoY versus the previous quarter, but the 2017 as a whole grew +5.9%, the strongest annual reading in three years. December exports growth slowed to +4.7% YoY and industrial production moderated to +2.9%. January CPI eased to +2.7% YoY.

Thai bonds fell -0.68% in USD. The Bank of Thailand left its interest rate on hold amid improving economy and weak price pressures. While the 4Q17 GDP (+4% YoY) missed consensus estimates, the 2017 full-year growth (+3.9%) still expanded at the fastest pace since 2012. January exports accelerated to +16.7% YoY, though trade surplus narrowed due to faster import growth. February CPI eased to +0.42% YoY.

Indonesian bond market declined by -3.6% in dollar terms. The 10 year government bond yield rose to 6.63% as of 28 February, 2018. The Bank Indonesia kept its interest rate unchanged at 4.25% as widely expected. January CPI eased to one-year low at +3.25% YoY while exports came in better than expected at +7.9%. Meanwhile, the Philippine bonds dropped by -4.94% in USD amid rising bond yields (10-year yield 6.73% as of end February) and weakening peso. January CPI rose to +4% YoY, close to upper band of BSP's inflation target while BSP left rates on hold. Also, the country saw trade deficit at $4 billion as exports unexpectedly fell -4.9% YoY in December.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 28 February 2018.

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.

The views expressed in this material are the views of Bruce Zhang only through the period ended 28 February 2018 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.

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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2059960.1.1.APAC.RTL Expiry Date: 03/31/2019