Insights

Why PAIF Will Continue to Harness Asian Opportunities

For two decades, the ABF Pan Asia Bond Index Fund (PAIF) has been underpinned by its straightforward access to Asia’s economic opportunities and the potential for attractive risk-adjusted returns. We explore why this is expected to continue in the years ahead.

May 27, 2025 5 min read

Individual Market Exposure is Capped

The index-tracking features of the ABF Pan Asia Bond Index Fund (PAIF) provide investors with diverse exposure to local-currency bonds across eight ASEAN markets. The iBoxx ABF Pan-Asia Index is used by PAIF as an investment objective minus fees and expenses. The index has been designed to encompass the overall size of bond issuance and factors like liquidity, credit ratings, the regulatory, legal, and fiscal environment, as well as trading and clearing infrastructure in each market.¹

Unsurprisingly, China’s population, geography, and economic strength result in its bond market being larger than the other seven economies in which PAIF invests. However, because any single market exposure is limited to 25% of the iBoxx ABF Pan-Asia Index, the position in China is also limited to 25% in PAIF. Following on, the most significant exposures are Singapore, South Korea, and Malaysia, while the smallest markets are Hong Kong and the Philippines, with around 8% and 6% index exposure, respectively.²

Increasing Intra-Regional Trade and Investment May Lead to Further Opportunities

The International Monetary Fund anticipates an increase in intra-Asia activity if markets integrate more closely in terms of trade and financial environments.³ The recent tariff issues may also spur changes to supply chains and encourage markets to reorient their economies to reduce their reliance on exports.⁴ Increasing trade and investment across Asia Pacific may trigger more issuance and provide PAIF with a deeper and broader pool of bonds.

Regional Economies Are Transitioning Towards Consumption and Services

Markets across the region have historically used exports to lift per capita incomes. While this has worked well in the past, they recognise that a pivot towards consumption and services⁵ is needed to become more productive.

For instance, China is using various policy tools to increase domestic consumption.⁶ The government is cognisant that people are cautious about how much they spend, which could trigger a deflationary spiral. This reluctance reflects concerns about factors such as the property market's health, unemployment, and a weak social services safety net.⁷

Bonds Are Perceived as a Less-Risky Investment

Investors seeking regional exposure have a range of choices to consider. Buying equities is one option, but stocks and shares are generally considered riskier than bonds.⁸ Foreign-currency corporate bonds are another possibility, but given these are typically issued in US dollars or euros, they generally carry a higher level of risk than a local-currency bond.⁹ This is because governments that issue sovereign bonds can always print more of their national currencies, whereas issuers of foreign-currency-denominated bonds do not have this option. The issuer will have to repay the investor in the that particular currency, so the possibility of the investor not being repaid, while likely small, does remain. As such, corporate bonds are often viewed as riskier than government or quasi-government bonds in which PAIF invests.¹⁰

Investors in Local-Currency Bonds Tend to Have a Longer-Term Perspective

Looking at the eight PAIF markets, there is a wide difference in the predominant type of investor. In China, for example, these are banks, whereas in Thailand, pension and insurance funds prevail.¹¹ A common factor, regardless of jurisdiction, is that investors tend to be long-term holders, meaning that short-term swings in sentiment should not trigger excessive volatility. This contrasts with overseas investors or short-term participants, who typically have a more limited holding time frame.

PAIF’s Cost-Effective and Easy-to-Access Structure

Overall, PAIF’s appeal is underpinned by the fact that investors can benefit from Asia’s economic opportunities in a straightforward transaction. Moreover, for two decades, the Fund’s investment approach has consistently delivered attractive returns with a relatively low level of risk.

Footnotes

Disclosure

All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.

Past performance is not a reliable indicator of future performance.

Diversification does not ensure a profit or guarantee against loss.

International Government bonds and corporate bonds generally have more moderate short-term price fluctuations than stocks, but provide lower potential long-term returns.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

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 State Street shall have no liability for decisions based on such information.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices 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.

The example mentioned is for illustrative purposes only.

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.

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.

Assets may be considered "safe havens" based on investor perception that an asset's value will hold steady or climb even as the value of other investments drops during times of economic stress. Perceived safe-haven assets are not guaranteed to maintain value at any time.

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.

The views expressed in this article are the views of Kheng-Siang Ng through the period ended 31 May 2025 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

This article is issued by State Street Global Advisors Singapore Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.