Commentary

August 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 markets gained slightly in August. Indonesian bond market was the best performer while Korean bond market was the worst for the month. The Markit iBoxx ABF Pan-Asia Bond Index rose +0.55% on an unhedged basis, in US dollar terms, and rose +0.26% on a USD hedged basis.

During the month, Chinese bonds gained +1.54% in USD terms thanks to CNY strength. While the most recent August manufacturing Purchasing Managers Index ("PMI") improved to 51.7, monthly releases for July indicated slower growth on a Year over year ("YoY") basis: Exports moderated to +7.2% and imports slowed to +11%, due to slower commodity import growth amid eased commodity price inflation. Industrial production (+6.4%), retail sales (+10.4%) and Fixed Asset Investment ("FAI") (+8.3% YTD) also weakened. Inflation pressure remained contained as Consumer Price Index ("CPI") (+1.4%) and PPI (+5.5%) were little changed. Finally, financial condition tightened further despite better-than-expected aggregate financing and new loans growth.

Hong Kong fixed income market rose +0.22% in dollar terms. 2Q17 gross domestic product ("GDP") came in better than expected at +3.8% YoY driven by strong private consumption and investment growth. July exports moderated to +7.3% YoY, as increases were seen in exports to Asia while decreases were registered in exports to the UK and US. Retail sales growth accelerated to +4% YoY in July supported by improvements in both local and tourist spending. Finally, July CPI ticked up to +2% YoY and unemployment rate stayed at 3.1%.

The Singapore fixed income market edged up by +0.06% in USD terms. 2Q17 GDP was revised up to +2.2% Quarter on quarter (QoQ) (+2.9% YoY) with services up but private demand still fragile. August manufacturing PMI inched up to 51.8 with electronics sector index improving to 53.2. July industrial production accelerated further to +21% YoY and Non-oil domestic exports grew by +8.5% YoY with a surge in electronic shipment. June retail sales strengthened to +1.9% YoY (+4% if excluding auto sales). Finally, July CPI inched higher to +0.6% YoY due to water price hikes.

Korean bond market fell -0.89% in USD dragged down by a weaker won. The Bank of Korea held policy rate steady at 1.25% and maintained cautious optimism despite elevated geopolitical risk from North Korea. 2Q17 final GDP (+2.7% YoY) was unchanged from preliminary reading. August exports stayed strong at +17.4% YoY and July industrial production turned positive to +0.09%. Finally, August CPI climbed to +2.6% YoY.

Malaysian bonds rose +0.86% in aggregate. 2Q17 GDP beat expectations, growing by +5.8% YoY. June exports moderated to +10% YoY while trade balance improved as import growth slowed. June industrial production slowed to +4% YoY and July CPI trended down to +3.2% led by decline in fuel prices.

Thai bonds rose +1.11% in USD. 2Q17 GDP came in stronger than estimated at +3.7% YoY mainly due to an unsustainable jump in agricultural output. The Monetary Policy Committee kept policy rate at 1.5% with a positive view on the growth outlook. July exports accelerated to +8% YoY while August CPI stayed low at +0.32%.

Indonesian bond market advanced by +2.04% in dollar terms. The 10 year government bond yield eased to 6.7% as of 31 August, 2017. 2Q17 GDP fell short of expectations, growing by +5% YoY. Bank Indonesia unexpectedly cut its reverse repo rate by 25bps on lower inflation risks. July CPI eased to +3.9% YoY on technical and seasonal factors while exports surged by +41.1%. On the other hand, the Philippine bonds fell -0.68% in USD. 2Q17 GDP went stronger to +6.5% YoY with drivers shifting from private investment and services to agriculture, manufacturing and government. The BSP kept its policy rate on hold at 3%. July CPI was little changed at +2.8% YoY while June exports weakened to +0.8% only.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 August 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 August 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.

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IBGAP-3717 Expiry Date: 09/30/2018