Commentary

December 2016

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 continued to decline in December 2016 amid the second hike of the US Fed funds target rate since December 2015. Most underlying markets were down with Korean bond market being the worst. On a positive note, Indonesia, Malaysia and the Philippine bond markets managed to rebound after sharp declines the previous month. The Markit iBoxx ABF Pan-Asia Bond Index fell -1.33% on an unhedged basis, in US dollar terms, and fell -0.41% on a USD hedged basis.

During the month, Chinese bonds were down by -2.34% in USD terms. December manufacturing Purchasing Managers Index (“PMI”) moderated to 51.4 but November growth indicators showed broad-based improvement: Exports improved to +0.1% Year over Year (“YoY”) and imports surged to +6.7%, pointing to a pickup in domestic demand. Industrial production (+6.2% YoY) and retail sales (+10.8% YoY) improved while FAI (+8.3% YTD, YoY) was unchanged. Consumer Price Index (“CPI”) edged up to +2.3% YoY and Producer Price Index (“PPI”) jumped to 3.3% due to higher commodity prices. Finally, new loans and aggregate financing rose more than expected, showing a moderate pick up in aggregate demand.

Hong Kong fixed income market edged down by -1.89% in dollar terms for the month. The lagging 3Q16 industrial production decline narrowed to -0.1% YoY while PPI jumped to +3.9%. December PMI improved to 50.3 and November exports surged to +8.1% YoY, led by increases in the export to Asia. Finally, November CPI held steady at +1.2% YoY and unemployment rate edged down to 3.3%.

The Singapore fixed income market fell -2.1% in USD terms. The 4Q16 Gross Domestic Product (“GDP”) surprised on the upside at +1.8% YoY as both manufacturing and services bounced up. November industrial production surged to +11.9% YoY and Non-oil domestic exports rebounded (+11.5% YoY) with electronic shipment rising the most (+3.5%) in more than 1 year. October retail sales rose +2.2% YoY (-0.3% if excluding auto sales). Finally, headline CPI decline was flat YoY in November, ending 24 months of deflation.

Korean bond market declined by -2.89% in USD dragged down by a weaker won. The Bank of Korea held steady at 1.25% amid domestic political uncertainty and risk of a faster Fed hiking. November industrial production rose +4.8% YoY and December exports jumped by +6.4% YoY on broad-based improvement. Finally, December CPI slowed to +1.3% YoY from a revised +1.5% the previous month.

Malaysian bonds advanced by +1.12% in aggregate amid a rebound in Ringgit. October exports surprised on the downside at -8.6% YoY. On a positive note, October industrial production accelerated to +4.2% YoY. November CPI climbed to +1.8% YoY.

Thai bonds fell -1.21% in USD. The Monetary Policy Committee kept policy rate unchanged at 1.5%. November exports saw double-digit growth (+10.09% YoY). Meanwhile, December CPI accelerated +1.13% YoY.

Indonesian bond market rose +2.88% in dollar terms driven by both stronger rupiah and higher local bond prices. The 10 year government bond yield declined to 7.97% as of 30 December, 2016. Bank Indonesia kept interest rates on hold at 4.75%, indicating a shifted focus from growth to currency stability. November CPI accelerated to +3.58% YoY and export growth surged to +21.34%, the most since September 2011. Meanwhile, the Philippine bonds edged up by +0.34% in USD. The BSP kept its benchmark interest rate on hold at 3%. November CPI climbed to +2.5% YoY, the fastest pace since February 2015. October exports missed estimates of +7.9%, rising +3.7% YoY only.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 December 2016.

This document is issued by State Street Global Advisors Singapore 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 December 2016 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.

Nothing contained here constitutes investment advice or should be relied on as such. The past performance of PAIF is not necessarily indicative of its future performance. The prospectus for PAIF is available and may be obtained from State Street Global Advisors Singapore Limited (the "Manager") and authorized participants. The value of PAIF and the income from them, if any, may fall or rise. The semi-annual distributions are dependent on PAIF's performance and are not guaranteed. Redemption of PAIF's units could only be executed in substantial size through designated dealers and the listing of PAIF on the Stock Exchange of Hong Kong ("SEHK") does not guarantee a liquid market for the units, and PAIF may be delisted from the SEHK.

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-3092 Expiry Date: 31 December 2017