Commentary

July 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 July amid currency strength against the US dollar. Thai bond market turned to the best performer while the Philippine bond market was the only negative market for the month. The Markit iBoxx ABF Pan-Asia Bond Index rose +1.11% on an unhedged basis, in US dollar terms, while rose +0.03% on a USD hedged basis.

During the month, Chinese bonds gained +0.73% in USD terms. 2Q17 gross domestic product ("GDP") came in better than expected at +6.9% Year over year ("YOY"). While the most recent July manufacturing Purchasing Managers Index ("PMI") weakened to 51.4, monthly releases for June growth improved on a YoY basis: Exports strengthened to +11.3% continuously driven by strong capital goods exports. Imports accelerated to +17.2%, supported by firm domestic demand. Both industrial production (+7.6%) and retail sales growth (+11%) improved while Fixed Asset Investment ("FAI") (+8.6% YTD) was unchanged. Inflation pressure remained muted at Consumer Price Index ("CPI") and Producer Price Index ("PPI") stayed at +1.5% and +5.5%, respectively. Finally, M2 growth moderated further despite still strong loan growth.

Hong Kong fixed income market edged up by +0.07% in dollar terms. July PMI edged up to 51.3. June exports grew by +11.1% YoY, supported by exports to most major destinations. Looking ahead, sustained growth in the global economy would render further support to the city's external trade, according to HK government. Retail sales growth slowed to +0.1% YoY in June. Finally, June CPI slowed to +1.9% YoY and unemployment rate eased to 3.1%.

The Singapore fixed income market rose +1.56% in USD terms. 2Q17 GDP missed expectations, growing by +0.4% Quarter on quarter (QoQ) (+2.5% YoY) while unemployment rate lowered to 2.2% from 2.3% the previous quarter. July manufacturing PMI inched up to 51 with electronics sector index improving to 52.2. June industrial production accelerated to +13.1% YoY and Non-oil domestic exports (+8.2% YoY) improved despite that electronic shipment slowed. May retail sales slowed to +0.9% YoY (+0.6% if excluding auto sales). Finally, June CPI eased to +0.5% YoY.

Korean bond market advanced by +2.46% in USD led by a rebound of won. The Bank of Korea held policy rate steady at 1.25% and raised 2017 GDP forecast to +2.8%. 2Q17 preliminary GDP grew by +2.7% YoY as widely expected. July exports strengthened to +19.5% YoY while June industrial production fell -0.3%. Finally, July CPI edged up to +2.2% YoY.

Malaysian bonds rose +0.47% in aggregate. The Bank Negara Malaysia kept policy rate unchanged at 3%. May exports surged +32.5% YoY and industrial production improved to +4.6%. June CPI moderated further to +3.6% YoY.

Thai bonds rose +2.64% in USD mainly driven by a stronger baht. The Monetary Policy Committee kept policy rate at 1.5% and 2017 GDP growth forecast was revised up to +3.5%. June exports moderated to +7.6% YoY while July CPI rose + 0.17%.

Indonesian bond market was little changed (+0.01%) in dollar terms. The 10 year government bond yield increased to 6.95% as of 31 July, 2017. Bank Indonesia left reverse repo rate unchanged at 4.75%. June CPI edged up to +4.4% YoY driven by admin prices and exports growth collapsed (-11.8%) due to holiday effect. On the other hand, the Philippine bonds fell -0.74% in USD. June CPI eased to +2.8% YoY and May exports rose +13.7%.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 July 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 31 July 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.

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