The Asia Pacific Fund, Inc.  Market Outlook and  Investment Strategy  Franki Chung  and Henry Chan December 2007
Table of Contents Page Section 1: Performance and Portfolio Review 2 - 19 Section 2: Asian Investment Outlook 20 - 47
Section 1: Performance and Portfolio Review
Performance Summary Highlights 3 month period to November 30, 2007 <ul><li>Fund’s NAV returns: +11.5% in USD terms  (+57.3...
The Asia Pacific Fund, Inc.  Long-Term   Performance (Cumulative   NAV Returns over  1, 3, 5 and 10 year periods to Novemb...
The Asia Pacific Fund, Inc. Short-Term Performance  (NAV Returns over 3 month period to November 30, 2007) Micropal Rankin...
Performance Attribution Analysis - Summary ( 3 month period to November 30, 2007) <ul><li>Positive Contributors: </li></ul...
Performance Analysis - Details  Asset and Sector Allocation (3 month period to Nov 30, ’07) <ul><li>Positive Asset Allocat...
Performance Analysis Stock Selection – Highlights of largest positive contributors  (3 month period to November 30, 2007) ...
Price Momentum Factor peaked in October,  after a 12 month strong out-performance Market Index Cumulative Factor Returns, ...
Local Currency exchange rate (US$/Local rate) ( 3 month period to November 30, 2007) 08/31/2007 11/30/2007 Change % * Nort...
Asian Stock Markets: Country Performance ( 3 month period to November 30, 2007) Gross return in USD Country - Index  (%) N...
Asian Stock Markets: Sectoral Performance  ( 3  month period to November 30, 2007) Source: Factset Gross return  in USD (%...
The Asia Pacific Fund, Inc. Country Allocation (as at November 30, 2007) 08/31/2007 11/30/2007 Significant Country  (%) (%...
The Asia Pacific Fund, Inc. Country Allocation vs Asian universe including India  (as at November 30, 2007) Source: Factse...
The Asia Pacific Fund, Inc. Sector Allocation  (as at November 30, 2007) Industrials, Technology and Cons. Disc. reduced; ...
Highlights of Portfolio Activity (3 month period to November 30, 2007) <ul><li>HK/China </li></ul><ul><li>Took profits in ...
Highlights of Portfolio Activity (3 month period to November 30, 2007) <ul><li>ASEAN </li></ul><ul><li>Reduced Malaysia  <...
Portfolio Characteristics (as at November 30, 2007)   Asia Pacific Fund  P/E using FY1 Est (X) 26.5 P/E using FY2 Est (X) ...
The Asia Pacific Fund, Inc. Premium/Discount Graph Source: Bloomberg (12/2007) ‘ Range bound’ trend, with discount trading...
Section 2: Global and Asian Investment Outlook
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>Global and regional inflation rates to continue to rise, forcing central banks ...
Global Risk Aversion Dominates: Another buying opportunity in Asian equities ?   Source: Credit Suisse  (12/2007) It has p...
Significant Outflows in Aug/Nov ‘07 in EM Asia: Precursor to US recession …. or .… high risk aversion ?   Source: Morgan S...
Asia vs OECD World:  Some signs of decoupling   ….. Source: Morgan Stanley  (12/2007) … . at both the economic and earning...
Asian Economic De-Coupling from OECD: Korean exports example Source: Morgan Stanley (12/2007) Less to the US, more to the ...
Asian Exports:  How important are they, REALLY ? Headline: yes ….. but value-added: not so much ! Source: UBS (12/2007) As...
So, can Asia withstand a G3 recession? Theoretically yes, but practically …… ?   Source: BNP Paribas (12/2007) If Asian’s ...
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 Housing Affordability:  Fine Source: UBS (12/2007) Plenty of room for the value of  an average property to rise  Index ...
HK Housing Sector:  Strong demand, limited supply Source: UBS (12/2007) Unlike the US, more favourable supply/demand  char...
HK Banking system:  Borrow, please !  Source: UBS (12/2007) Banks are seriously cashed-up ! (%) $HK bn Net  deposit (RHS) ...
Asian Equities vs. Asian Bonds:  Equities still cheaper Source: Morgan Stanley  (12/2007) Rising investor’s confidence nee...
Asia Interest Rates:  Still low   Source: Morgan Stanley  (12/2007) Low nominal and real Asian interest rates are expected...
EPS Growth  (in % terms) 15x ? ….....… 25x ?  ......... or  higher ?  2006 2007e 2008f 2009f CAGR 06-09e Asset 1 +17.8 +27...
Asia Trades at a Premium to the US:  Deservedly so ?   Source: Morgan Stanley  (12/2007) The re-pricing of Asian vs US ass...
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...
Earnings Growth vs Valuations: What the consensus expects in Asia and the World More sustainable and consistent  earnings ...
Key Investment Themes for Asia in 2008 <ul><li>Assuming no US recession and no inflation blow-out in the region, Asian mar...
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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APB - Market Outlook Investment Strategy Presentation Dec 2007

  1. 1. The Asia Pacific Fund, Inc. Market Outlook and Investment Strategy Franki Chung and Henry Chan December 2007
  2. 2. Table of Contents Page Section 1: Performance and Portfolio Review 2 - 19 Section 2: Asian Investment Outlook 20 - 47
  3. 3. Section 1: Performance and Portfolio Review
  4. 4. Performance Summary Highlights 3 month period to November 30, 2007 <ul><li>Fund’s NAV returns: +11.5% in USD terms (+57.3% inc. dividends over 12 month period to 11/30/07) </li></ul><ul><li>Fund’s share price returns: +9% in USD terms (+50.3% inc. dividends over 12 month period to 11/30/07) </li></ul><ul><li>Fund’s ranking in Micropal survey: 3 rd quartile for 3 month period and Top 15% for 12 month periods to Nov 2007 </li></ul><ul><li>Strong long-term track record maintained </li></ul>
  5. 5. The Asia Pacific Fund, Inc. Long-Term Performance (Cumulative NAV Returns over 1, 3, 5 and 10 year periods to November 30, 2007) Strong long-term track record maintained Micropal Ranking + 30/212 23/177 26/153 5/89 Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance. Data source - © 2007 Morningstar, Inc. (See Important Information)
  6. 6. The Asia Pacific Fund, Inc. Short-Term Performance (NAV Returns over 3 month period to November 30, 2007) Micropal Ranking + 194/220 100/220 42/220 130/219 30/211 In line with referenced Benchmark, but slightly below Micropal Peer Average over 3 month period Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance. Data source - © 2007 Morningstar, Inc. (See Important Information)
  7. 7. Performance Attribution Analysis - Summary ( 3 month period to November 30, 2007) <ul><li>Positive Contributors: </li></ul><ul><li>Asset Allocation </li></ul><ul><li>Stock Selection </li></ul><ul><li>Negative Contributor: </li></ul><ul><li>Sector Allocation </li></ul>
  8. 8. Performance Analysis - Details Asset and Sector Allocation (3 month period to Nov 30, ’07) <ul><li>Positive Asset Allocation : </li></ul><ul><li>Overweight China </li></ul><ul><li>Negative Sector Allocation : </li></ul><ul><li>Underweight Telecoms and Real Estate </li></ul><ul><li>Overweight Materials </li></ul>
  9. 9. Performance Analysis Stock Selection – Highlights of largest positive contributors (3 month period to November 30, 2007) India’s leading provider of housing finance; company is extremely well-managed, with sustainable growth in sales and profits (stock price rose by 45.4%) HDFC (listed in India) (1.3% of NAV) Indonesia’s largest listed nickel producer (61% owned by CVRD Inco) (stock price rose by 91.8%) Inco Intl Nickel Indo (listed in Indonesia) (0.8% of NAV) China’s leading provider of personal hygiene tissue-based products (inc. sanitary napkins and baby diapers) ( stock price rose by 42.4%) Hengan Intl (listed in HK) (1.9% of NAV) China’s leading gold producer, with some copper interests (stock price rose by 64.5%) Zijin Mining Group (listed in HK) (2.1% of NAV) Event Stock
  10. 10. Price Momentum Factor peaked in October, after a 12 month strong out-performance Market Index Cumulative Factor Returns, last 18 months (as at November 30, 2007) Asia Pacific Fund VaR Factor Exposures, last 18 months (as at November 30, 2007) Source: Baring Asset Management We continued to reduce the Fund’s exposure to stocks with high price momentum Value Growth Size Momentum Value Growth Size Momentum -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 May 2006 Aug 2006 Nov 2006 Feb 2007 May 2007 Aug 2007 Nov 2007 -15% -10% -5% 0% 5% 10% 15% 20% 25% May 2006 Aug 2006 Nov 2006 Feb 2007 May 2007 Aug 2007 Nov 2007
  11. 11. Local Currency exchange rate (US$/Local rate) ( 3 month period to November 30, 2007) 08/31/2007 11/30/2007 Change % * North Asia New Taiwan Dollar 33.00 32.26 +2.3 Chinese Renminbi 7.55 7.40 +2.0 South Korean Won 938 921 +1.9 Hong Kong Dollar 7.80 7.79 +0.1 ASEAN Philippine Peso 46.54 42.78 +8.8 Singaporean Dollar 1.52 1.45 +5.3 Malaysian Ringgit 3.50 3.36 +4.1 Thai Baht 34.31 33.85 +1.4 Indonesian Rupiah 9,390 9,370 +0.2 Indian Rupee 40.88 39.63 +3.2 *: + denotes an appreciation of the local currency vs the USD (and vice-versa) Source: Factset Strong Asian currencies’ performance vs the USD
  12. 12. Asian Stock Markets: Country Performance ( 3 month period to November 30, 2007) Gross return in USD Country - Index (%) North Asia MSCI Hong Kong Free +23.3 MSCI China Free +20.9 MSCI Korea Free +4.1 MSCI Taiwan Free -0.8 ASEAN MSCI Indonesia Free +31.0 MSCI Malaysia Free +14.4 MSCI Philippines Free +12.1 MSCI Thailand Free +9.1 MSCI Singapore Free +7.9 MSCI India Free +33.9 MSCI AC Far East Free Ex Japan Gross +11.4 Source: Factset ‘ Growth’ markets of India, Indonesia and HK-China led, while ‘Technology-dominated’ markets of Korea/Taiwan lagged
  13. 13. Asian Stock Markets: Sectoral Performance ( 3 month period to November 30, 2007) Source: Factset Gross return in USD (%) Energy and Telecoms led, while Technology and Health Care lagged
  14. 14. The Asia Pacific Fund, Inc. Country Allocation (as at November 30, 2007) 08/31/2007 11/30/2007 Significant Country (%) (%) Change * North Asia 80.6 78.4  Hong Kong/China 44.0 43.0  South Korea 20.5 20.9 Taiwan 16.1 14.5  ASEAN 16.0 16.8 Singapore 11.8 11.9 Indonesia 2.1 3.4  Malaysia 1.8 0.6  Philippines 0.3 0.4 Thailand 0.0 0.7 India 1.2 1.5 Cash 2.2 3.3  Reduced China and Malaysia in order to fund other markets and Cash * Only 1% change or more is highlighted by arrow moves Source: Factset
  15. 15. The Asia Pacific Fund, Inc. Country Allocation vs Asian universe including India (as at November 30, 2007) Source: Factset Asia Pacific MSCI All Country Fund Asia x-Japan Difference Country (%) (%) North Asia 78.4 73.1 5.2 Hong Kong/China 43.0 36.8 6.1 South Korea 20.9 21.3 -0.4 Taiwan 14.5 15.0 -0.5 ASEAN 16.8 15.3 1.5 Singapore 11.9 6.6 5.3 Indonesia 3.4 2.5 0.8 Philippines 0.4 0.8 -0.4 Thailand 0.7 2.0 -1.3 Malaysia 0.6 3.5 -3.0 India 1.5 11.2 -9.7 Pakistan 0.0 0.3 -0.3 Cash 3.3 0.0 3.3
  16. 16. The Asia Pacific Fund, Inc. Sector Allocation (as at November 30, 2007) Industrials, Technology and Cons. Disc. reduced; Financials, Cons. Staples and Telecoms raised 08/31/2007 11/30/2007 Significant Sector (%) (%) Change * Financials 23.0 25.0  Information Technology 19.3 16.0  Industrials 18.2 15.7  Materials 12.3 13.0 Consumer Discretionary 8.4 6.6  Energy 6.2 8.4  Consumer Staples 3.4 4.9  Telecom Services 3.0 5.2  Health Care 0.0 0.0 Utilities 0.5 0.0 Chinese ‘A-share’ ETF 3.4 1.8  Cash 2.2 3.3  * Only 1% change or more is highlighted by arrow moves Source: Factset
  17. 17. Highlights of Portfolio Activity (3 month period to November 30, 2007) <ul><li>HK/China </li></ul><ul><li>Took profits in ‘Cyclical Growth’: </li></ul><ul><li>Consumer (Lifestyle Intl), Materials ( Zijin Mining, Alum Corp of China), Industrials (Zhuzhou Times, Nine Dragons, Guangshen Railways) and A-share ETF </li></ul><ul><li>Added to ‘Defensive Growth’ (China Mobile, ICBC Bank, Henderson Land & Devpt) </li></ul><ul><li>Taiwan </li></ul><ul><li>Added to Undervalued Property plays/ Materials ( Asia Cement ) </li></ul><ul><li>Switched Technology stocks (sold Siliconware Precision and Firich Enterprise, bought Advanced Semicon and Asustek ) </li></ul>(Cont.)
  18. 18. Highlights of Portfolio Activity (3 month period to November 30, 2007) <ul><li>ASEAN </li></ul><ul><li>Reduced Malaysia </li></ul><ul><li>Added to Indonesia, Singapore and Thailand </li></ul><ul><li>Korea </li></ul><ul><li>Added to ‘Special Situations’ (Samsung Corp, Korea Invt, KT&G) and Materials ( Posco) </li></ul><ul><li>Reduced exposure to YTD winners (Samsung Heavy) or under-performing stocks (Hynix Semi, Woori Investment) </li></ul>
  19. 19. Portfolio Characteristics (as at November 30, 2007) Asia Pacific Fund P/E using FY1 Est (X) 26.5 P/E using FY2 Est (X) 20.9 Dividend Yield (%) 1.5 EPS FY1/FY0 growth (%) +50.3 EPS FY2/FY1 growth (%) +26.3 Hist 3 Yr EPS Growth (%) +43.6 Hist 3 Yr Sales Growth (%) +31.2 Growth and quality bias maintained Source : FactSet
  20. 20. The Asia Pacific Fund, Inc. Premium/Discount Graph Source: Bloomberg (12/2007) ‘ Range bound’ trend, with discount trading between 7.5% to 12.5%
  21. 21. Section 2: Global and Asian Investment Outlook
  22. 22. 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>Undervalued currencies, fairly-valued equity markets </li></ul><ul><li>Secular re-rating of Asian assets expected to continue </li></ul>
  23. 23. 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, but extent and speed dependent on inflation trend </li></ul><ul><li>Asian economies will likely feel some negative impact through weaker exports, but are expected to continue to grow solidly </li></ul>Net, net, a more challenging global economic backdrop
  24. 24. Barings’ Asian Economic forecasts for 2008 <ul><li>Continuing growth in domestic demand expected to remain the key driver of growth in Asia </li></ul><ul><li>China and India expected to continue to grow solidly, helping to boost intra-regional trade </li></ul><ul><li>Other Asian economies likely to grow at trend rate, some helped by favourable recent electoral outcomes </li></ul><ul><li>Asian central banks’ policy direction expected to remain mixed ( ie, HK to cut, China to raise) </li></ul><ul><li>Asian currencies likely to continue to strengthen 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
  25. 25. Current Concerns in Equity Markets <ul><li>Global and regional inflation rates to continue to rise, forcing central banks to tighten more aggressively (or to cut rates by less) than currently expected </li></ul><ul><li>Fear of a US and global recession developing, causing risk aversion to reign in the short-term </li></ul><ul><li>Current high earnings expectations to cause disappointment </li></ul>We are monitoring the above risks closely
  26. 26. Global Risk Aversion Dominates: Another buying opportunity in Asian equities ? Source: Credit Suisse (12/2007) It has paid to buy a strong growth story (such as Asia) in times of rising global risk aversion Risk index
  27. 27. Significant Outflows in Aug/Nov ‘07 in EM Asia: Precursor to US recession …. or .… high risk aversion ? Source: Morgan Stanley (12/2007) (US$bn) Recent ‘panic selling’ probably caused by rising global risk aversion (18.3) 2.6 (15.2) (20) (18) (16) (14) (12) (10) (8) (6) (4) (2) - 2 4 6 8 10 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Monthly Net Foreign Buying in EM Asia
  28. 28. Asia vs OECD World: Some signs of decoupling ….. Source: Morgan Stanley (12/2007) … . at both the economic and earnings levels % YoY % YoY
  29. 29. 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
  30. 30. Asian Exports: How important are they, REALLY ? Headline: yes ….. but value-added: not so much ! Source: UBS (12/2007) Asian export sector’s value added contribution to the region’s GDP appears to be less than 5% 0% 5% 10% 15% 20% 25% 30% 35% Hong Kong Malaysia Vietnam Singapore Taiwan Thailand China Philippines Korea Pakistan India Estimated value-added share Headline Exports Export share of GDP (%)
  31. 31. So, can Asia withstand a G3 recession? Theoretically yes, but practically …… ? Source: BNP Paribas (12/2007) If Asian’s current strong domestic demand continues, its correlation with the US economy should diminish over time 0 8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 16 24 32 Real total domestic demand Real exports US real imports (y-y %) weaker correlation as Asian domestic demand (+8.3% y-y) is stronger stronger correlation as Asian domestic demand (+4.1% y-y) is weaker (16) (8) 0 8 16 24 32
  32. 32. 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)
  33. 33. 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
  34. 34. 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
  35. 35. HK Housing Affordability: Fine Source: UBS (12/2007) Plenty of room for the value of an average property to rise Index 10 30 50 70 90 110 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Affordability Ratio
  36. 36. HK Housing Sector: Strong demand, limited supply Source: UBS (12/2007) Unlike the US, more favourable supply/demand characteristics Units - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 1972 1977 1982 1987 1992 1997 2002 2007E Total Private Residential Completion (unit) Forecast adjusted down in Nov 07
  37. 37. 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)
  38. 38. 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
  39. 39. Asia Interest Rates: Still low Source: Morgan Stanley (12/2007) Low nominal and real Asian interest rates are expected to remain supportive for equity markets (%) - 2 4 6 8 10 12 14 16 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 LIBOR 3M Asia Interbk 3M Core Asia Interbk 3M
  40. 40. EPS Growth (in % terms) 15x ? ….....… 25x ? ......... or higher ? 2006 2007e 2008f 2009f CAGR 06-09e Asset 1 +17.8 +27.7 +21.4 +16.3 +20.7% Asset 2 +30.2 +11.9 +20.6 +27.1 +22.3% In a world of Downgrades, what are you prepared to pay for this EPS Growth series? Source: Morgan Stanley (12/2007)
  41. 41. Asia Trades at a Premium to the US: Deservedly so ? Source: Morgan Stanley (12/2007) The re-pricing of Asian vs US assets is likely to continue to favour Asia (P/E) 12M Fwd PE 7 9 11 13 15 17 19 21 23 25 27 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Fed Easing Fwd PE- AP ex JP S&P 500
  42. 42. 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
  43. 43. 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
  44. 44. 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
  45. 45. 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
  46. 46. Earnings Growth vs Valuations: What the consensus expects in Asia and the World More sustainable and consistent earnings growth expected in Asia/EM, yet valuations of latter still not expensive Source: Goldman Sachs, IBES (12/2007) 17.2 17.1 16.1 14.6 2008 E 15.9 11.7 12.4 11.0 2009 E 2.3 2.3 1.9 2.4 2007 E Div. Yield ROE (%) EPS Growth (%) P/E (E) 2007 E 2007 E 2008 E 2007 E 16.2 21.0 15.4 18.1 ASIA 18.0 23.6 14.0 16.4 Emerging Markets 16.9 1.7 15.0 17.4 US 16.2 9.9 13.9 15.9 World
  47. 47. Key Investment Themes for Asia in 2008 <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>
  48. 48. 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
  49. 49. 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. 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. Research Material Baring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime. For data sourced from Morningstar: © 2007 Morningstar, Inc. all rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Complied (Boston): January 2, 2008 Disclosure for Board meeting only

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