Commentary

March 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 gained in aggregate in March with bond yields falling amid a dovish US Fed. Meanwhile, the region's central banks were patient in terms of any rate hikes and some turned dovish given stable inflation and soft growth. The Philippine bond market was the best while Thai bond market was the only negative market. The Markit iBoxx ABF Pan-Asia Bond Index rose 0.75% on an unhedged basis, in US dollar terms, and rose 1.35% on a USD hedged basis.

During the month, Chinese bonds inched up by 0.07% in USD terms ahead of Bloomberg index inclusion. March manufacturing PMI (50.5) surprised on the upside while February year-on-year (y/y) monthly releases suggested soft growth: exports (-20.7%) were downbeat due to weak global demand and the US tariffs, even accounting for seasonal distortions. Meanwhile, imports fell 5.2%. In addition, the year-to-date industrial production and retail sales slowed to +5.3% and +8.2%, respectively. On a positive note, fixed asset investment growth accelerated to +6.1% for the first two months of the year. CPI eased to +1.5% and PPI stayed at +0.1%. Finally, the sharp drop in lending reversed much of the jump in January. While the figures are highly seasonal, the year-on-year change indicated only tepid credit growth.

Hong Kong fixed income market rose 1.15% in dollar terms. The lagging 4Q18 industrial production and PPI increased to +1.3% y/y and +0.3% y/y, respectively. February exports fell 6.9% y/y, dampened by easing global economic growth and the US-China trade tensions. Retail sales fell 10.1% y/y in February. February CPI eased to +2.1% y/y due to lower energy and durable goods prices and unemployment rate stayed at 2.8%.

The Singapore fixed income market advanced by 0.76% in USD terms. February Industrial production rose 0.7% y/y and non-oil domestic exports turned positive to +4.9% y/y with electronic exports recording a smaller decline. January retail sales improved to +7.6% y/y (+5.3% if excluding auto sales) and February CPI edged up to +0.5% y/y. Finally, March PMI improved to 50.8 with electronics sector index increasing to 49.8.

Korean bond market went up by 0.6% in USD. February industrial production fell 2.7% y/y. March exports fell 8.2% y/y, indicating little improvement to the external environment. March CPI eased further to +0.4% y/y.

Malaysian bonds gained 1.2% in aggregate. The Bank Negara Malaysia left interest rates unchanged at 3.25%. January industrial production slowed to +3.2% y/y. February exports grew came in worse than expected at -5.3% y/y dragged down by crude oil and petroleum products. February CPI (-0.4% y/y) fell for the second straight month as fuel prices dropped.

Thai bonds fell 0.23% in USD dragged down by weaker baht amid political uncertainties. The Bank of Thailand kept rates unchanged at 1.75% as expected and cut its 2019 GDP forecast to 3.8% from 4%. February exports fell 1.7% y/y but trade surplus widened as imports fell more sharply. CPI (+1.24% y/y) surprised on the upside in March driven by rising fresh food and energy prices.

Indonesian bond market rose 0.7% in dollar terms. The 10-year government bond yield declined by 18 basis points to 7.63% as of 29 March 2019. The Bank Indonesia left interest rates unchanged at 6% and indicated the decision was consistent with efforts to strengthen external stability. February exports fell 11.3% y/y while trade balance turned positive due to a sharper decline in imports. March CPI eased further to +2.48% y/y.

The Philippine bonds surged by 4.27% in USD. The BSP left its main policy rate on hold at 4.75%, but interest rate cuts are now looking increasingly likely with CPI slowing sharply (+3.3% y/y in March). January exports fell 1.7% y/y and trade deficit slightly widened.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 31 March 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 March 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.

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2496624.1.1.APAC.RTL Expiry Date: 04/30/2020