THE ASIA PACIFIC FUND, INC. Investment Community Conference Call www.asiapacificfund.com Khiem Do – Fund Manager February ...
Table of Contents Page Section 1: Asian Markets Review 2 - 5 Section 2: Asian Investment Outlook 6 – 30 and Strategy
Section 1: Asian Markets Review
Local Currency exchange rate (US$/Local rate) As at January 31, 2008 3 months 1 year Change % * Change %  * North Asia Chi...
Asian Stock Markets: Country Performance As at January 31, 2008 Gross return in USD (%) Country - Index  3 months 1 year N...
Asian Stock Markets: Sectoral Performance  As at January 31, 2008 Source: Factset Gross return in USD (%) 3 months 1 year ...
Section 2: Asian Investment Outlook and Strategy
Asia’s Long-Term Outlook: We retain our positive stance <ul><li>Sustainable growth, boosted by rising domestic demand </li...
Barings’ Global Economic forecasts for 2008 <ul><li>OECD G7 economies expected to grow at a slower rate, caused by weaker ...
Barings’ Asian Economic forecasts for 2008 <ul><li>Continuing growth in domestic demand expected to remain the key driver ...
Current Concerns in Equity Markets <ul><li>Fear of a US and global recession  developing, causing  risk aversion  to domin...
Alternative Scenarios: Which one do you believe in ? <ul><li>1) Severe US recession, and People’s Bank Of China (“PBOC”) t...
Significant Outflows in Emerging Asia: Precursor to US recession ?   Source: Morgan Stanley  (01/2008) Recent ‘panic selli...
Global Risk Appetite : At Panic Levels ! Source: CSFB (1/2008) ‘ Panic’ risk appetite levels tend to be a ‘contrarian’  bu...
Barings’ Base Case Scenario: Cautiously optimistic <ul><li>US recession:  less than 40% chance  (Fed to cut rates by a fur...
<ul><li>“In light of the recent changes in the outlook for and the risks to growth,  additional policy easing  may well be...
Asian Economic De-Coupling from OECD: Korean exports example Source: Morgan Stanley (12/2007) Less to the US, more to the ...
Asia vs OECD World:  Some signs of decoupling   ….. Source: Morgan Stanley  (12/2007) … . at both the economic and earning...
Food:  Important for Asia’s headline CPI   Source: BNP Paribas (12/2007) A key risk factor to watch Food as a % of CPI 0 1...
Asia & China’s Core vs Headline Inflation: Headline: worrying …… Core: tame Source: Morgan Stanley  (12/2007) Will Asian c...
Property Prices’ Past 10 Year Trend: US peaked, but Asia is still catching up …… Source: UBS (12/2007) More upside expecte...
HK Banking system:  Borrow, please !  Source: UBS (12/2007) Banks are seriously cashed-up ! (%) $HK bn Net  deposit (RHS) ...
Profit Outlook: US vs Asia US:  down revisions Asia Pacific Ex-Japan:  up revisions Source :  JP Morgan (12/2007) Asia upt...
Profit Outlook:  Asia’s out-performers China Singapore Source :  JP Morgan (12/2007) A pause in the upward earnings surpri...
Profit Outlook: Selective in ASEAN Indonesia Thailand Source :  JP Morgan (12/2007) Mixed trends in ASEAN EPS index (2007:...
Profit Outlook : Asia’s recovery plays Source :  JP Morgan (12/2007) Selective growth opportunities in Korea and Taiwan  T...
Asian Equities vs. Asian Bonds:  Equities still cheaper Source: Morgan Stanley  (12/2007) Rising investor’s confidence nee...
Historical 12 months forward P/E Band MSCI Asia Index Source: CSFB (1/2008) At fair value ? MSCI Asia Index 10X 12X 14X 16...
China vs India: Which market out-performed over past 3 years ? Source: Bloomberg (1/2008) Equally strong
Key Investment Themes for Asia <ul><li>Assuming no US recession and no inflation blow-out in the region, Asian markets are...
The Fund’s Key Sectoral Investment themes <ul><li>Consumption, infrastructure and financials themes </li></ul><ul><li>Othe...
Important Information Ensure Complied Date is added at foot of Disclosure This document is provided as a service to profes...
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Baring Asset Management (Asia) Limited

  1. 1. THE ASIA PACIFIC FUND, INC. Investment Community Conference Call www.asiapacificfund.com Khiem Do – Fund Manager February 13, 2008
  2. 2. Table of Contents Page Section 1: Asian Markets Review 2 - 5 Section 2: Asian Investment Outlook 6 – 30 and Strategy
  3. 3. Section 1: Asian Markets Review
  4. 4. Local Currency exchange rate (US$/Local rate) As at January 31, 2008 3 months 1 year Change % * Change % * North Asia Chinese Renminbi +3.9 +8.2 Hong Kong Dollar -0.6 +0.2 South Korean Won -4.6 -0.3 New Taiwan Dollar +0.7 +2.4 ASEAN Thai Baht +2.9 +5.2 Malaysian Ringgit +3.1 +8.2 Philippines Peso +7.7 +20.6 Singaporean Dollar +2.2 +8.4 Indonesian Rupiah -1.6 -1.6 Indian Rupee -0.1 +12.2 *: + denotes an appreciation of the local currency vs the USD (and vice-versa) Source: Datastream Most Asian currencies continued to rise vs the USD over the short- and long-term
  5. 5. Asian Stock Markets: Country Performance As at January 31, 2008 Gross return in USD (%) Country - Index 3 months 1 year North Asia MSCI China -35.2 36.2 MSCI Hong Kong -14.7 22.8 MSCI Korea -23.0 19.8 MSCI Taiwan -21.6 0.4 ASEAN MSCI Thailand -10.9 36.7 MSCI Indonesia -0.5 59.6 MSCI Singapore -19.2 8.0 MSCI Malaysia 2.9 31.2 MSCI Philippines -8.2 19.0 MSCI India Free -9.7 44.6 MSCI AC Far East Free Ex Japan Gross -22.9 19.9 Source: Datastream While leading over the long-term, China fell sharply over the past 3 month period
  6. 6. Asian Stock Markets: Sectoral Performance As at January 31, 2008 Source: Factset Gross return in USD (%) 3 months 1 year MSCI Energy -28.7 62.8 MSCI Materials -29.6 42.1 MSCI Industrials -31.2 32.3 MSCI Telecommunication Services -17.4 36.9 MSCI Real Estate -17.8 23.9 MSCI Financials -22.9 15.6 MSCI Consumer Staples -7.6 35.1 MSCI Consumer Discretionary -13.8 16.5 MSCI Utilities -6.4 11.8 MSCI Health Care -4.4 23.4 MSCI Information Technology -21.5 -4.4 Energy, Materials and Industrials led over the long-term, but were subject to profit-taking over the past 3 month period
  7. 7. Section 2: Asian Investment Outlook and Strategy
  8. 8. Asia’s Long-Term Outlook: We retain our positive stance <ul><li>Sustainable growth, boosted by rising domestic demand </li></ul><ul><li>Improving corporate returns and healthy balance sheets </li></ul><ul><li>Under-valued currencies, under-valued equity markets </li></ul><ul><li>Secular re-rating of Asian assets expected to continue </li></ul>
  9. 9. Barings’ Global Economic forecasts for 2008 <ul><li>OECD G7 economies expected to grow at a slower rate, caused by weaker US consumption and much reduced new bank lending </li></ul><ul><li>But prospects for US recession still unlikely ( less than 40% probability ) </li></ul><ul><li>US Federal Reserve expected to continue to ease </li></ul><ul><li>Asian economies will likely feel some negative impact through weaker exports </li></ul>Net, net, a more challenging global economic backdrop
  10. 10. Barings’ Asian Economic forecasts for 2008 <ul><li>Continuing growth in domestic demand expected to remain the key driver of growth in Asia, exports to weaken </li></ul><ul><li>China and India expected to continue to grow solidly </li></ul><ul><li>Asian currencies likely to continue to rise vs the USD </li></ul><ul><li>Key risks include rising inflation and tighter-than-expected monetary policy </li></ul>Net, net, still a favourable economic backdrop for equity investors in the region
  11. 11. Current Concerns in Equity Markets <ul><li>Fear of a US and global recession developing, causing risk aversion to dominate </li></ul><ul><li>Global and regional headline inflation rates to rise , forcing central banks to tighten more aggressively (or to cut rates by less) </li></ul><ul><li>Potential downgrade in corporate earnings </li></ul>We are monitoring the above risks closely
  12. 12. Alternative Scenarios: Which one do you believe in ? <ul><li>1) Severe US recession, and People’s Bank Of China (“PBOC”) to continue to tighten through 2008: </li></ul><ul><li>Equity markets could fall by a further 10-20% </li></ul><ul><li>2) US and OECD to ‘muddle through’, and PBOC to ease off on monetary tightening from Q2 ’08: </li></ul><ul><li>Equity markets likely to range trade in H1 and return to moderate bull trend in H2 (+10% ?) </li></ul><ul><li>3) Massive easing by the Fed, and PBOC to talk up Chinese economy and give green light to ‘through train’ in Q2: </li></ul><ul><li>Equity markets likely to range trade in Q1 and ‘skyrocket’ from Q2 (+20-30% ?) </li></ul>Consensus appears to believe in Scenario 1 or 2 (depends on which day !?)
  13. 13. Significant Outflows in Emerging Asia: Precursor to US recession ? Source: Morgan Stanley (01/2008) Recent ‘panic selling’ most probably caused by rising fear of a US recession, hence rising risk aversion (US$bn)
  14. 14. Global Risk Appetite : At Panic Levels ! Source: CSFB (1/2008) ‘ Panic’ risk appetite levels tend to be a ‘contrarian’ buying signal for long-term investors -6 -4 -2 0 2 4 6 8 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 100 200 300 400 500 600 700 Global risk appetite (LHS) Asia ex Japan (RHS) Euphoria Panic
  15. 15. Barings’ Base Case Scenario: Cautiously optimistic <ul><li>US recession: less than 40% chance (Fed to cut rates by a further 75-100 bps, plus fiscal packages) </li></ul><ul><li>PBOC to ease off on monetary tightening from Q2 ’08: Tough now and more accomodative later </li></ul><ul><li>QDII / ‘through train’ : QDII to continue, and ‘through train’ …… possibly in Q2 ? </li></ul>Potential upside risk from Q2 in Asia and HK China in particular?
  16. 16. <ul><li>“In light of the recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary''   </li></ul><ul><li>“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks” </li></ul><ul><li>                                                                                      </li></ul>The Fed is Worried: More monetary and fiscal stimuli to come ! “ Lai-See” for Asia ? Source: Mr. Bernanke’s speech, 10/1/2008
  17. 17. Asian Economic De-Coupling from OECD: Korean exports example Source: Morgan Stanley (12/2007) Less to the US, more to the region and other EM/European nations Contribution to Korea’s Export Growth, % (%) -5 0 5 10 15 20 25 30 35 China ASEAN Middle East Latam Emerging Europe EU US Japan 2002-2006 YTD 2007
  18. 18. Asia vs OECD World: Some signs of decoupling ….. Source: Morgan Stanley (12/2007) … . at both the economic and earnings levels OECD G7 LEI (Left) Asia LEI (Right) % YoY (6) (4) (2) 0 2 4 6 8 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 -2 0 2 4 6 8 10 12 14 16 18 % YoY % YoY -60 -50 -40 -30 -20 -10 0 10 20 30 Jan- 88 Jan- 90 Jan- 92 Jan- 94 Jan- 96 Jan- 98 Jan- 00 Jan- 02 Jan- 04 Jan- 06 Jan- 08 -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Analyst Revision - MSCI A/P, % (Left) OECD LEI (Right)
  19. 19. Food: Important for Asia’s headline CPI Source: BNP Paribas (12/2007) A key risk factor to watch Food as a % of CPI 0 10 20 30 40 50 60 China Hong Kong Taiwan Korea Singapore Malaysia Thailand Indonesia Philippines (% share)
  20. 20. Asia & China’s Core vs Headline Inflation: Headline: worrying …… Core: tame Source: Morgan Stanley (12/2007) Will Asian central banks act on headline or core inflation trends ? Asia ex-Japan China (%) 0% 1% 2% 3% 4% 5% 6% Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 CPI Core CPI (%) -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 CPI Non-Food CPI
  21. 21. Property Prices’ Past 10 Year Trend: US peaked, but Asia is still catching up …… Source: UBS (12/2007) More upside expected in Asia (%) -40 -20 0 20 40 60 80 100 120 US Korea Thailand Taiwan Sing HK
  22. 22. HK Banking system: Borrow, please ! Source: UBS (12/2007) Banks are seriously cashed-up ! (%) $HK bn Net deposit (RHS) 0% 50% 100% 150% 200% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -2,800 -1,400 - 1,400 2,800 Total LDR (LHS)
  23. 23. Profit Outlook: US vs Asia US: down revisions Asia Pacific Ex-Japan: up revisions Source : JP Morgan (12/2007) Asia uptrend pausing, US downtrend worsening EPS index (2007: starting at 100 on base date of February ‘06) 95 98 101 104 107 110 113 116 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008 95 100 105 110 115 120 125 130 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008
  24. 24. Profit Outlook: Asia’s out-performers China Singapore Source : JP Morgan (12/2007) A pause in the upward earnings surprise trend ? EPS index (2007: starting at 100 on base date February ‘06) 95 105 115 125 135 145 155 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008 96 104 112 120 128 136 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008
  25. 25. Profit Outlook: Selective in ASEAN Indonesia Thailand Source : JP Morgan (12/2007) Mixed trends in ASEAN EPS index (2007: starting at 100 on base date February ‘06) 95 105 115 125 135 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008 82 86 90 94 98 102 106 110 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008
  26. 26. Profit Outlook : Asia’s recovery plays Source : JP Morgan (12/2007) Selective growth opportunities in Korea and Taiwan Taiwan Korea EPS index (2007: starting at 100 on base date February ‘06) 90 93 96 99 102 105 108 111 114 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008 80 85 90 95 100 105 110 115 Feb 06 Sep 06 Apr 07 Nov 07 2007 2008
  27. 27. Asian Equities vs. Asian Bonds: Equities still cheaper Source: Morgan Stanley (12/2007) Rising investor’s confidence needed to close the gap (%) APXJ 10Y Bond Yield - Fwd Earnings Yield (%) (LHS) Avg. -1 Std dev (LHS) Avg. +1 Std dev (LHS) MSCI_ Price_USD AP ex JP (RHS) -6.0 -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 Apr-95 Oct-96 Apr-98 Oct-99 Apr-01 Oct-02 Apr-04 Oct-05 Apr-07 - 100 200 300 400 500 600 700
  28. 28. Historical 12 months forward P/E Band MSCI Asia Index Source: CSFB (1/2008) At fair value ? MSCI Asia Index 10X 12X 14X 16X 18X
  29. 29. China vs India: Which market out-performed over past 3 years ? Source: Bloomberg (1/2008) Equally strong
  30. 30. Key Investment Themes for Asia <ul><li>Assuming no US recession and no inflation blow-out in the region, Asian markets are expected to achieve a sixth year of positive return in 2008 </li></ul><ul><li>The more sustainable the high earnings growth trend, the more expensive the market is likely to become ( i.e., India, China ) </li></ul><ul><li>Favourable electoral outcomes in Korea, Taiwan and Thailand can turn these under-performing markets around dramatically </li></ul>
  31. 31. The Fund’s Key Sectoral Investment themes <ul><li>Consumption, infrastructure and financials themes </li></ul><ul><li>Other regional asset reflation plays </li></ul><ul><li>Re-construction of Asia – engineering, construction, building materials, capital goods </li></ul><ul><li>Improved supply side discipline of “cyclical” sectors – energy, materials (and technology ?) </li></ul>Consumption, Asset Reflation and Infrastructure/Construction
  32. 32. Important Information Ensure Complied Date is added at foot of Disclosure This document is provided as a service to professional investors/advisers. It is issued in the United Kingdom by Baring Asset Management Limited and/or by its investment adviser affiliates in other jurisdictions. The affiliate serving as the Asia Pacific Fund’s investment adviser is Baring Asset Management (Asia) Limited. In the United Kingdom this document is issued only to persons falling within a permitted category under (i) the FSA’s rules made under section 238(5) of the Financial Services and Markets Act 2000 and (ii) the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001. This is not an offer nor a solicitation to buy or sell any investment referred to in this document. Baring Asset Management group companies, their affiliates and/or their directors, officers and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. The contents of this document are based upon sources of information believed to be reliable but no guarantee, warranty or representation, express or implied, is given as to their accuracy or completeness. This document may include forward-looking statements, which are based upon our current opinions, expectations and projections as of the date on the cover hereof. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance will not necessarily be repeated. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available. Private investors in the Company referred to herein should obtain their own independent financial advise before making investments. This document must not be relied on for purposes of any investment decisions. Before investing in the Company, we recommend that all relevant documents, such as reports and accounts and prospectus should be read, which specify the particular risks associated with investment in the Company, together with any specific restrictions applying and the basis of dealing. The Company may not be available for investment in all jurisdictions. There may also be prohibitions or restrictions on distribution of this document and other material relating to the Company and accordingly recipients of any such documents are advised to inform themselves about and to observe any such restrictions. Complied (Boston): February 4, 2008 Disclosure for presentations to PUBLIC
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