Commentary

January 2019

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 rose in January on falling bond yields due to growth slowdown and local currencies' strength against the US dollar amid a dovish Fed. All underlying markets gained with the Philippines leading the way. The Markit iBoxx ABF Pan-Asia Bond Index rose +2.31% on an unhedged basis, in US dollar terms, and rose +0.61% on a USD hedged basis.

During the month, Chinese bonds gained +3.34% in USD terms. The renminbi ended January 2.7% stronger against the US dollar amid optimism on US-China trade negotiations. On January 31, Bloomberg confirmed that it would include onshore China government and policy bank bonds in its widely followed Bloomberg Barclays Global Aggregate Index beginning in April 2019. The PBOC cut RRR by 100 bps in aggregate over the month, aiming to smooth out the liquidity squeeze around the Lunar New Year and to boost financial support for small and micro enterprises as well as private corporates. The 4Q18 GDP grew +6.4% y/y (the slowest pace since 1Q09) and 2018 full-year GDP expanded +6.6%. December y/y monthly releases echoed GDP softness: Exports fell -4.4% as global growth softened and the drag from US tariffs intensified. Imports fell -7.6% on the back of cooling domestic demand. CPI and PPI eased to +1.9% and +0.9% respectively amid lower oil price. For the year 2018, retail sales and industrial production were +9% and +6.2%, respectively and fixed asset investment growth was +5.9%. Finally, the broad credit growth suggested that the economy would not turn for several months yet.

Hong Kong fixed income market rose +0.78% in dollar terms. December exports fell -5.8% y/y on global growth moderation and US-Mainland trade tensions. Retail sales slowed to +0.1% y/y in December. December CPI eased to +2.5% y/y and unemployment rate stayed at 2.8%.

The Singapore fixed income market advanced by +0.64% in USD terms. The 4Q18 preliminary GDP moderated to +2.2% y/y (2018 growth: +3.3%) driven by slower services sector growth. December Industrial production slowed to +2.7% y/y and Non-oil domestic exports fell -8.5% y/y with electronic exports dropping by -11.2%. November retail sales fell -3% y/y (-0.2% if excluding auto sales) while December CPI climbed to +0.5% y/y. Finally, January PMI eased further to 50.7 with electronics sector index falling to 49.6.

Korean bond market went up by +0.07% in USD. The Bank of Korea kept policy rates unchanged at 1.75%. The 4Q18 GDP surprised on the upside at +3.1% y/y mainly led by government spending. December industrial production accelerated to +1.6% y/y. January exports fell -5.8% y/y due to US-China trade dispute impact and drop in shipments of semiconductors and oil products. January CPI slowed further to +0.8% y/y.

Malaysian bonds increased by +2% in aggregate. The Bank Negara Malaysia held overnight policy rate unchanged at 3.25% but they did highlight downside risks. December exports improved to +4.8% y/y from +1.6% in November while November industrial production slowed to +2.5%. December CPI stayed at +0.2% y/y.

Thai bonds rose +4.73% in USD. December exports fell -1.6% y/y while trade surplus improved on the sharper decline in imports. CPI eased further to +0.27% y/y in January.

Indonesian bond market gained +3.73% in dollar terms driven by a strong rupiah. The 10 year government bond yield edged down by 2bps to 8.01% as of 31 January, 2019. The Bank Indonesia left interest rates unchanged at 6%. December exports fell -4.62% y/y while trade deficit narrowed due to the much slower import growth. January CPI eased to +2.82% y/y.

The Philippine bonds surged +6.03% in USD. The 4Q18 GDP came in weaker than expected at +6.1% y/y and 2018 full-year growth (+6.2%) was below the government's target (6.5%-6.9%). January CPI slowed further to +4.4% y/y from +5.1% in December. November exports fell -0.3% y/y but trade deficit narrowed as imports slowed sharply.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 January 2019.

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 January 2019 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.

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.

© 2019 State Street Corporation - All Rights Reserved

2451722.1.1.APAC.RTL Expiry Date: 02/29/2020