Commentary

December 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 continued to rise in aggregate in December amid the widely-expected US Fed rate hike. Both Indonesia and the Philippines won Fitch's rating upgrades to BBB over the month. Almost all bond markets gained continuously led by South Korea while Hong Kong remained the only negative market. The Markit iBoxx ABF Pan-Asia Bond Index rose +1.14% on an unhedged basis, in US dollar terms, and rose +0.21% on a USD hedged basis.

During the month, Chinese bonds rose +1.38% in USD terms amid CNY strength. December manufacturing PMI moderated slightly to 51.6 while November monthly releases suggested mixed growth on a YoY basis: Exports (+12.3%) surprised on the upside and imports grew +17.7%. Industrial production (+6.1%), and FAI (+7.2% YTD) eased while retail sales accelerated to +10.2%. CPI and PPI eased to +1.7% and +5.8%, respectively. Finally, credit growth accelerated mainly due to seasonality.

Hong Kong fixed income market fell -0.19% in dollar terms. The lagging 3Q17 industrial production growth slowed to +0.3% YoY. November exports grew +7.8% YoY, with increases registered in some major destinations except Singapore and the UK. Retail sales accelerated to +7.5% YoY in November, reflecting the visible growth in visitor arrivals and the sanguine consumer sentiment according to HK government. Finally, November CPI and unemployment rate were little changed at +1.6% YoY and 3%, respectively.

The Singapore fixed income market rose +1.47% in USD terms. The 4Q17 preliminary GDP came in better than expected at +3.1% YoY mainly led by services industries while December PMI eased slightly to 52.8 with electronics sector index moderating to 53.2. Industrial production growth eased to +5.3% YoY in November and non-oil domestic exports moderated to +9.1% YoY despite improvements in electronics exports. October retail sales fell -0.1% YoY (+0.8% if excluding auto sales). Finally, November CPI inched up to +0.6% YoY.

Korean bond market gained +1.69% in USD driven by continuing won strength. November industrial production fell -1.6% YoY due to a slump in the construction sector. December exports came in lower than expected at +8.9% YoY while CPI inched up to +1.5% YoY.

Malaysian bonds advanced by +1.33% in aggregate. October exports accelerated to +18.9% YoY while industrial production eased to +3.4%. November CPI moderated to +3.4% YoY.

Thai bonds rose +0.43% in USD. The Bank of Thailand left its key interest rate unchanged at 1.5% as widely expected. November export growth moderated to +12.3% YoY while trade surplus increased due to slower expansion in imports. December CPI inched lower to +0.78% YoY.

Indonesian bond market gained +1.31% in dollar terms. The 10 year government bond yield eased to 6.32% as of 29 December, 2017. The Bank Indonesia kept its interest rate unchanged at 4.25%. November CPI eased further to +3.3% YoY and exports grew +13.2%. Meanwhile, the Philippine bonds rose +0.27% in USD. The BSP kept its policy rate on hold at 3% as expected. November CPI inched lower to +3.3% YoY while October exports accelerated to +6.6%.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 December 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.

The views expressed in this material are the views of Bruce Zhang only through the period ended 31 December 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.

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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1999454.1.1.APAC.RTL Expiry Date: 1/31/2019