Commentary

January 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 rebounded in January 2017 amid broad-based rallies in local currencies. Most underlying markets advanced with Korean bond market leading the way. On the other hand, China was the only market which fell for the month. The Markit iBoxx ABF Pan-Asia Bond Index rose +1.9% on an unhedged basis, in US dollar terms, and rose +0.25% on a USD hedged basis.

During the month, Chinese bonds were down by -0.18% in USD terms. 4Q16 Gross Domestic Product (“GDP”) came in better than expected at +6.8% Year over year (“YOY”) led by better service sector growth, leaving 2016 growth at 6.7%. January manufacturing PMI slowed to 51.3 and December growth indicators were mixed: Exports improved fell -6.1% YoY while imports (+3.1%) were supported by strong commodity imports. Retail sales accelerated to +10.9% YoY while industrial production and YTD Fixed Asset Investment (“FAI”) moderated to +6% and +8.1% respectively. Consumer Price Index (“CPI”) eased to +2.1% YoY while PPI came in higher than expected at +5.5%. Finally, new loans and aggregate financing were strong, reflecting firm aggregate demand growth.

Hong Kong fixed income market edged up by +0.38% in dollar terms for the month. January PMI moderated to 49.9 while December exports (+10.1% YoY) surprised on the upside, as exports to Asian markets held firm. Finally, December CPI was unchanged at +1.2% YoY and unemployment rate stayed at 3.3%.

The Singapore fixed income market rose +3.04% in USD terms. January PMI accelerated to 51 with electronics sector index improving to 51.8. December industrial production surged by +21.3% YoY and Non-oil domestic exports came in better than expected at +9.4% YoY with electronic shipment rising +5.7%. November retail sales rose +1.1% YoY (-2.1% if excluding auto sales). Finally, December headline CPI (+0.2% YoY) rose for the first time in more than 2 years.

Korean bond market jumped by +3.89% in USD driven by a stronger won. The Bank of Korea held steady at 1.25% amid domestic political uncertainty and risk of a faster Fed hiking. 4Q16 GDP softened to +2.3% YoY. December industrial production slowed to +4.3% YoY but January exports surged to 4-year high at +11.2%. Finally, January CPI (+2% YoY) spiked to the highest since 2012.

Malaysian bonds advanced by +2.47% in aggregate. The Bank Negara Malaysia maintained its policy rate at 3%. November exports turned positive to +7.8% YoY and industrial production quickened to +6.2%. December CPI was unchanged at +1.8% YoY.

Thai bonds rose +1.85% in USD. December exports slowed to +5.6% YoY. Meanwhile, January CPI accelerated +1.55% YoY, driven by a surge in fuel prices.

Indonesian bond market rose +2.5% in dollar terms. The 10 year government bond yield declined to 7.65% as of 31 January, 2017. Bank Indonesia held interest rates at 4.75% and expected higher growth and inflation in 2017. December CPI moderated to +3.02% YoY and exports rose +15.57%. Meanwhile, the Philippine bonds was up by +2.22% in USD. 4Q16 GDP slowed to +6.6% YoY, leaving 2016 full-year growth at 6.8%. December CPI rose +2.6% YoY while November exports fell -7.5% YoY.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 January 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 31 January 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-3092 Expiry Date: 31 December 2017