Commentary

April 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 were flat in April.  Malaysian bond market was the best performer driven by a strong ringgit while Korean bond market was the worst dragged down by a weaker won. The Markit iBoxx ABF Pan-Asia Bond Index fell -0.01% on an unhedged basis, in US dollar terms, while rose +0.05% on a USD hedged basis.

During the month, Chinese bonds fell -1.11% in USD terms on rising yields. 1Q17 Gross Domestic Product ("GDP") came in better than expected at +6.9% Year over year ("YOY"). March YoY growth indicators were positive overall: Exports (+16.4%) surprised on the upside as growth to G3 and ASEAN countries quickened notably. Imports surged +20.3% on domestic demand and import inflation. Industrial production (+7.6%) and FAI (+9.2% YTD) improved while retail sales were unchanged at +10.9%. Consumer Price Index ("CPI") edged up by +0.9% YoY while PPI eased to +7.6%. Finally, M2 growth slowed more than expected due to credit tightening.

Hong Kong fixed income market climbed by +0.79% in dollar terms for the month. March exports sustained strong growth (+16.9% YoY), as exports to the major advanced economies improved visibly and those to many Asian economies stayed robust. Retail sales grew +3.1% YoY in March on continued recovery of visitor arrivals and robust local consumption demand. Finally, March CPI stayed soft at +0.5% YoY and unemployment rate inched down to 3.2%.

The Singapore fixed income market rose +0.76% in USD terms. 1Q17 GDP moderated to +2.5% YoY and the Monetary Authority of Singapore ("MAS") stayed on hold and reiterated neutral stance as appropriate for an "extended period". April Purchasing Managers Index ("PMI") slowed to 51.1 with electronics sector index edging down to 51.6. March industrial production grew +10.2% YoY. March Non-oil domestic exports rose +16.5% YoY but electronic shipment growth slowed to +5.2%. February retail sales fell -2.5% YoY (-4.9% if excluding auto sales). Finally, March headline CPI was unchanged at +0.7% YoY, which supports MAS' unchanged neutral policy and forward guidance.

Korean bond market dropped by -1.52% in USD dragged down by a weaker won. The Bank of Korea held steady at 1.25% focusing on financial stability. Preliminary estimate of 1Q17 GDP (+2.7% YoY) surprised on the upside. While strong export is leading manufacturing & facilities investment recovery, domestic demand held up well. April exports soared +24.2% YoY on broad based improvement while March industrial production moderated to +3% YoY. Finally, April CPI edged lower to +1.9% YoY.

Malaysian bonds surged by +2.45% in aggregate mainly driven by a strong ringgit. February exports surged to +26.5% YoY supported by recovery in exports of electrical/electronic products together with petroleum products and industrial production accelerated to +4.7%. March CPI (+5.1% YoY) surged to post-GFC high caused by higher retail fuel prices.

Thai bonds fell -0.47% in USD amid a weaker baht. March exports accelerated to +10.76% YoY amid broad-based recovery and tourism rebounded. Meanwhile, April CPI eased further +0.38% YoY.

Indonesian bond market advanced by +0.74% in dollar terms. The 10 year government bond yield was little changed at 7.05% as of 28 April, 2017. Bank Indonesia held reverse repo rate at 4.75% and expects 1Q GDP growth to be healthy. March CPI moderated to +3.6% YoY while exports accelerated to +23.6%. Meanwhile, the Philippine bonds edged up by +0.52% in USD. March CPI climbed to +3.4% YoY and February exports slowed to +11% YoY.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 30 April 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 April 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.

Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong • Telephone: +852 2103-0288 • Facsimile: +852 2103-0200.

© 2017 State Street Corporation - All Rights Reserved

IBGAP-3476 Expiry Date: 30 April 2018