Commentary

October 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 October amid local currencies’ weakness. All underlying markets fell with Indonesian bond market being the worst. The Markit iBoxx ABF Pan-Asia Bond Index fell -1.34% on an unhedged basis, in US dollar terms, while rose +0.08% on a USD hedged basis.

During the month, Chinese bonds edged lower by -0.16% in USD terms. The 3Q18 GDP slowed to +6.5% YoY, reflecting weaker infrastructure investment and industrial production and October manufacturing PMI eased to 50.2. September monthly releases were mixed on a YoY basis: Exports stayed resilient (+14.5% YoY) amid a weaker renminbi. Growth in exports to the US edged up but by a smaller margin than shipments to the rest of the world, hinting at some impact from tariffs. Imports on the other hand moderated to +14.3% YoY. PPI eased to +3.6% while CPI rose +2.5%. Retail sales and year-to-date fixed asset investment improved slightly to +9.2% and +5.4% respectively but industrial production slowed to +5.8%. Finally, the broad credit growth improved on seasonality and further policy easing is likely.

Hong Kong fixed income market edged down by -0.05% in dollar terms. September exports slowed to +4.5% YoY as exports to major destinations (i.e. the US, China and Japan) slowed or declined. Retail sales grew at a decelerated pace (+2.4% YoY) in September amid the temporary drag on inbound tourism by typhoon Mangkhut, worries about the US-Mainland trade conflicts and stock market corrections. September CPI rose +2.7% YoY due to higher public housing rental and school fees while unemployment rate stayed at 2.8%.

The Singapore fixed income market fell -1.47% in USD terms. The MAS tightened monetary policy for a second time this year encouraged by steady economic growth (3Q18 preliminary GDP: +2.6% YoY). October PMI eased to 51.9 with electronics sector index slowing to 50.5. Industrial production turned negative to -0.2% YoY in September dragged down by electronics output. September non-oil domestic exports accelerated to +8.3% YoY despite that electronic exports fell -0.9%. August retail sales fell -0.4% YoY (+2.4% if excluding auto sales). Finally, September CPI stayed at +0.7% YoY as lower retail costs offset a smaller fall in accommodation cost.

Korean bond market went down by -1.62% in USD. The Bank of Korea kept its interest rates unchanged at 1.5%. The 3Q18 preliminary GDP came in softer than expected at +2% YoY amid slower fixed asset investments. September industrial production dropped most (-8.4% YoY) since March 2009 while October exports surprised on the upside (+22.7% YoY). October CPI rose +2% YoY.

Malaysian bonds fell -1.09% in aggregate. August exports unexpectedly fell -0.3% YoY driven by weaker electronics and lack of pass-through from higher oil price into liquefied natural gas shipments and industrial production moderated to +2.2%. September CPI increased marginally to +0.3% YoY.

Thai bonds declined by -2.61% in USD. September exports contracted by -5.5% YoY while trade surplus widened due to slower import growth. CPI eased to +1.23% YoY in October amid lower fresh-food prices.

Indonesian bond market dropped by -3.52% in dollar terms. The 10 year government bond yield rose to 8.54% as of 31 October, 2018. The Bank Indonesia left rates unchanged at 5.75% while maintained its hawkish policy stance to ensure rupiah stability. September exports slowed further to +1.7% YoY and October CPI accelerated to +3.16%. Meanwhile, the Philippine bonds were down by -2.47% in USD. September CPI jumped to +6.7% YoY, the highest since February 2009. August exports improved to +3.1% YoY.

IMPORTANT NOTES:
For Public Use.

Source: SSGA, as of 30 October 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 October 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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2323120.1.1.APAC.RTL Expiry Date: 11/30/2018