Commentary

October 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 edged down slightly in aggregate in October. Korean bond market turned to the best performer for the month while the Philippine bond market was at the bottom. The Markit iBoxx ABF Pan-Asia Bond Index fell -0.23% on an unhedged basis, in US dollar terms, and fell -0.67% on a USD hedged basis.

During the month, Chinese bonds fell -0.35% in USD terms. The Communist Party of China (CPC)’s 19th Party Congress was held over the month and China’s top leadership group was elected. 3Q17 Gross domestic product (GDP) grew +6.8% Year over year (YOY) supported by robust factory output and consumer spending. Most September monthly releases were positive on a YoY basis: Exports improved to +8.1% and imports surged to +18.7% led by inbound shipments of industrial commodities. Industrial production (+6.6%) and retail sales (+10.3%) improved while FAI (+7.5% YTD) softened. Consumer Price Index (CPI) moderated to +1.6% on falling food prices while Producer Price Index (PPI) accelerated to +6.9% buoyed by commodity prices. Finally, credit growth came in faster than expected despite debt curb efforts.

Hong Kong fixed income market inched lower by -0.35% in dollar terms. September exports accelerated to +9.4% YoY, as increases were seen in exports to major destinations. Retail sales improved to +5.6% YoY in September, reflecting the upbeat consumer sentiment and continued improvement in inbound tourism. Finally, September CPI moderated to +1.4% YoY and unemployment rate stayed at 3.1%.

The Singapore fixed income market fell -0.2% in USD terms. The 3Q17 advanced GDP accelerated to +4.6% YoY on export bounce. However, September non-oil domestic exports unexpectedly fell -1.1% YoY with a plunge in electronics orders. October Purchasing Managers Index (PMI) went higher to 52.6 though electronics sector index decreased to 53.3. September industrial production rose +14.6% YoY. August retail sales rose +3.5% YoY (+3.7% if excluding auto sales). Finally, September CPI stayed at +0.4% YoY.

Korean bond market gained +0.85% in USD driven by a stronger won. While the Bank of Korea held interest rates at 1.25%, its hawkish comments signaled rate hike was on horizon. The 3Q17 preliminary GDP improved to +3.6% YoY as growth in exports and government spending accelerated. September industrial production surged to +8.4% YoY while October exports slowed to +7.1% affected by a national holiday lasting more than a week. Finally, October CPI moderated to +1.8% YoY.

Malaysian bonds fell -0.33% in aggregate. August exports remained double-digit growth (+21.5% YoY) mainly driven by LNG, petroleum and chemical products. August industrial production improved to +6.8% YoY and September CPI picked up to +4.3%, matching estimate.

Thai bonds rose +0.54% in USD. September exports rose +13.4% YoY and imports rose +6.5%, leaving trade surplus at $5.4 billion. October CPI stayed at +0.86% YoY.

Indonesian bond market fell -1.69% in dollar terms. The 10 year government bond yield advanced to 6.8% as of 31 October, 2017. The Bank Indonesia kept is reverse repo rate unchanged at 4.25% after two cuts in a row as policy makers turn their attention to risks of a weaker currency. September CPI eased further to +3.7% YoY while trade surplus ($1.76 billion) was the highest in 5 years driven by exports. Meanwhile, the Philippine bonds dropped by -1.85% in USD amid peso weakness. September CPI quickened to +3.4% YoY mainly driven by higher food prices while August exports moderated to +9.4%.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 October 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 October 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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IBGAP-3828 Expiry Date: 11/30/2018