Commentary

February 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.

Most Asian bond markets rose in February 2017 with Korean bond market remaining the top performer. On the other hand, the Philippines market was the only market which fell for the month. The Markit iBoxx ABF Pan-Asia Bond Index rose +1.24% on an unhedged basis, in US dollar terms, and rose +0.48% on a USD hedged basis.

During the month, Chinese bonds climbed by +0.6% in USD terms. February manufacturing PMI accelerated to 51.6. January growth indicators were distorted by lunar new year (LNY) effect: Exports (+7.9% Year over year (“YOY”)) surprised on the upside helped by a low based one year ago. Similarly, Consumer Price Index (“CPI”) accelerated to +2.5% YoY due to LNY effect and Producer Price Index (“PPI”) increased further to +6.9% against a low base. Finally, new total social financing jumped to a record high on stronger bank loans, non-discounted bills and trust loans.

Hong Kong fixed income market advanced by +0.61% in dollar terms for the month. 4Q16 GDP (+3.1% YoY) came in better than expected due to stronger private consumption and export growth, leaving 2016 growth at +1.9%. February Purchasing Managers Index (“PMI”) moderated to 49.6. January exports fell -1.2% YoY, which may be affected by LNY effect. Finally, January CPI edged up by +1.3% YoY on higher package tours inflation around LNY and unemployment rate stayed at 3.3%.

The Singapore fixed income market rose +2.29% in USD terms. 4Q16 final Gross Domestic Product (“GDP”) was revised up to +2.9% YoY from +1.8%, boosting the 2016 year growth to +2%. February PMI eased to 50.9 with electronics sector index declining to 51.4. January industrial production slowed significantly to +2.2% YoY while Non-oil domestic exports rose +8.6% YoY with electronic shipment surging +6.1%. December retail sales moderated to +0.4% YoY (+0.3% if excluding auto sales). Finally, January headline CPI climbed by +0.6% YoY.

Korean bond market jumped by +2.93% in USD driven by a stronger won. The Bank of Korea held steady at 1.25% given internal and external uncertainly together with risk of a faster Fed hiking. February exports jumped by +20.2% YoY with notable gains in petroleum products and semiconductors. Finally, February CPI rose +1.9% YoY.

Malaysian bonds edged up by +0.24% in aggregate. 4Q16 GDP (+4.5% YoY) beat expectations, leaving 2016 annual growth at +4.2%.  December exports improved further to +10.7% YoY while industrial production slowed to +4.7%. January CPI accelerated to +3.2% YoY.

Thai bonds rose +1.32% in USD. The Monetary Policy Committee kept the policy rate unchanged at 1.5%. 4Q16 GDP growth softened to +3% YoY and 2016 growth was +3.2%. January exports increased by +8.49% YoY. Meanwhile, February CPI eased +1.44% YoY.

Indonesian bond market rose +1.18% in dollar terms. The 10 year government bond yield eased to 7.54% as of 28 February, 2017. Bank Indonesia held interest rates at 4.75% and sounded confident of keeping 2017 inflation contained. 4Q16 GDP moderated to +4.94% YoY on government spending cuts, but full year growth improved marginally to +5%. January CPI jumped to +3.5% YoY due to higher administrative prices and exports surged +27.7%. In contrast, the Philippine bonds fell -1.14% in USD mainly due to a weaker peso. The Bangko Sentral ng Pilipinas (“BSP”) kept policy rate unchanged at 3%. January CPI climbed to +2.7% YoY and December exports turned positive to +4.5 YoY.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 28 February 2017.

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 28 February 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.

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.

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.

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IBGAP-3476 Expiry Date: 28 February 2018