Commentary

June 2018

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 market declined in June amid tighter US monetary policy and currency weakness against US dollar. All underlying bond markets were negative with Indonesian bond market at the bottom. The Markit iBoxx ABF Pan-Asia Bond Index fell -2.37% on an unhedged basis, in US dollar terms, while rose +0.11% on a USD hedged basis.

During the month, Chinese bonds fell -2.33% in USD terms dragged down by CNY amid increasing concerns over trade tensions between China and the US. China announced to cut its required reverse ratio by 50bps to 15.5% with an intension to support banks' debt-to-equity swaps. June manufacturing PMI went lower to 51.5 and May monthly releases indicated slower growth speed on a YoY basis: Exports moderated to +12.6% and imports accelerated to +26% buoyed in part by higher import price inflation from rising oil prices. CPI stayed at +1.8% and PPI climbed to +4.1%. The year-to-date FAI slowed to +6.1% driven by a slowdown in infrastructure investment. Industrial production and retail sales eased to +6.8% and +8.5%, respectively. Finally, credit growth weakened.

Hong Kong fixed income market edged down by -0.05% in dollar terms. The lagging 1Q18 industrial production and PPI rose +1.1% and +3.8% YoY, respectively. May exports accelerated to +15.9% YoY with increases registered among most major markets. Retail sales improved to +12.9% YoY in May thanks to the sanguine local consumption sentiment and the visible increase in visitor arrivals according to HK government. May CPI climbed to +2.1% YoY. Unemployment rate was unchanged at 2.8% in May.

The Singapore fixed income market dropped by -1.51% in USD terms. June PMI moderated to 52.5 with electronics sector index edging down to 51.9. Industrial production strengthened to +11.1% YoY in May and non-oil domestic exports improved to +15.5% YoY despite a decline of -7.8% in electronic exports. April retail sales rose +0.4% YoY (+0.7% if excluding auto sales). Finally, May CPI climbed to +0.4% YoY.

Korean bond market fell -2.24% in USD. May industrial production continued to rise +0.9% YoY thanks to steady mining and manufacturing figures while June exports fell -0.1%. June CPI stayed at +1.5% YoY, as a decline in agricultural goods prices offset rising prices of petroleum goods.

Malaysian bonds declined by -0.99% in aggregate. April exports surged +14% YoY and industrial production grew +4.6%. May CPI picked up to +1.8% YoY.

Thai bonds fell -3.37% in USD. The Bank of Thailand remained its policy rate on hold at 1.5% as expected. May exports and imports rose +13.1% and +12.7% YoY respectively with trade surplus widening. CPI slowed to +1.4% YoY in June.

Indonesian bond market dropped by -6.96% in dollar terms. The 10 year government bond yield surged to 7.8% as of 29 June, 2018. The Bank Indonesia surprised the market by raising it interest rate by 50bps to 5.25%, indicating the main focus of the central bank is boosting the rupiah.

May CPI moderated to +3.23% YoY. The country saw another month of trade deficits in May as imports (+28.2% YoY) grew faster than exports (+12.5%YoY). Meanwhile, the Philippine bonds fell -3.56% in USD. The BSP hiked its key policy rate again from 3.25% to 3.5% to curb inflation and support peso. May CPI nudged higher to +4.6% YoY and April exports dropped by -8.5%, the most since July 2016.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 30 June 2018.

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 30 June 2018 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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2185498.1.1.APAC.RTL Expiry Date: 06/30/2019