investment community conference call presentation

Baring AssetManagement (Asia) Limited19/F, Edinburgh Tower, 15 Queen’s Road Central, Hong Kong

Tel +852 2841 1411

www.barings.com

Authorised and regulated by theFinancial Services Authority

Khiem Do

October 29, 2008

The Asia Pacific Fund, Inc.Investment Community Conference Call

Asian Investment Outlook

www.asiapacificfund.com

2

Table of Contents

Page

Section 1: Asian Markets Review 2 - 4

Section 2: Global and Asian Investment Outlook 5 - 15

Appendix: Can China Save the World ? 16 - 25


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Section 1

Asian Markets Review

4

Asian Stock Markets: Country Performance(Year-to-date to October 24, 2008)

Gross return in USDCountry - Index (%)

North AsiaMSCI Taiwan Free -46.6MSCI Hong Kong Free -55.7MSCI China Free -62.8MSCI Korea Free -66.1

ASEANMSCI Malaysia Free -45.3MSCI Thailand Free -50.4MSCI Philippines Free -51.7MSCI Singapore Free -55.1MSCI Indonesia Free -57.6

MSCI AC Far East Free Ex Japan Gross -58.1

MSCI India Free -68.5Vietnam (HCM Local price index) -62.8

Source: Factset, Bloomberg

5

Asian Stock Markets: Sectoral Performance (Year-to-date to October 24, 2008)

Source: Factset

MSCI Utilities -38.0MSCI Telecommunication Services -48.7MSCI Information Technology -52.4MSCI Consumer Staples -54.4MSCI Financials -56.6MSCI Consumer Discretionary -58.4MSCI Real Estate -60.9MSCI Health Care -62.7MSCI Energy -66.4MSCI Materials -67.1MSCI Industrials -69.3

Sector Gross return in USD (%)


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Section 2Global and Asian Investment Outlook

7

Risk Aversion Soared:Implications of a freeze-up in the Global Banking system

Source: BCA Research (10/2008)

Will global action succeed in thawing the frozen banking system ?

8

Global Risk Appetite still Very Weak:Hide in cash/government bonds or buy cheap equities ?

Investors , in general, have been hiding in cash

Source: Credit Suisse (10/2008)

Global Risk Appetite Since 1981

-5

0

5

10

01/81 01/85 01/89 01/93 01/97 01/01 01/05

Euphoria

PanicLatest = -4.56

(17 Oct 08)

Risk Index

9

Significant Flows out of EM Asia:Unprecedented, continuing selling

Significant de-risking and de-leveraging by global investors

Note: EM Asia here includes India, Indonesia, Korea, Taiwan, Thailand and the Philippines.Net Foreign Buying in EM Asia – Source: Morgan Stanley (10/2008)Net Foreign Buying in EM Asia ex-China & Malaysia – Source: Credit Suisse estimates (10/2008)

Net Foreign Flows in EM Asia (ex-China & Malaysia)

Net Foreign buying/selling in EM Asia (ex-China and Malaysia)

2.6

-5.4

-15.

2-1

4.8

-18.

3 -12.

9 -10.

30.

7

-8.3

-8.5

-20

-15

-10

-5

0

5

10

Jan-

03

Jul-

03

Jan-

04

Jul-

04

Jan-

05

Jul-

05

Jan-

06

Jul-

06

Jan-

07

Jul-

07

Jan-

08

Jul-

08

(US$bn)

Monthly Net Foreign Buying in EM Asia

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

EM Asia ex-China & Malaysia

10

Our Key Long-Term Views:Still positive on Asia

Asia – Positive long-term fundamentals remain intact

Secular growth driven by domestic demand

Supportive liquidity – excess domestic savings, healthy banking system

Very attractive equity valuations, plus conservative corporate balance sheets

Three short-term issues:

1) Normalisation of the Western banking system: when ?

2) Global recession: how deep and how long ?

3) US equity market: when will it bottom ?

11

Barings’ Base Case Scenario:Still ‘cautiously’ optimistic

Potential upside in equity markets higher than downside risk on a 1 to 2 year view

Flat to low OECD GDP growth in 2009

Mid-term correction in a long up-cycle in Asia, but no recession

Chinese government and PBOC have already started to reflate, more to come

Looking for an upturn in sentiment in the equity markets within the next 3-6 months

12

Asian vs US Financials:‘Chalk and cheese’

Do Asian banks deserve the same share price treatmentas their US counterparts ?

Source: Bloomberg (9/2008)

13

Commodities Correction:How deep ?

Source: BCA Research (10/2008)

Demand Destruction Underway More Downside to Come

Positive for Asian inflation and interest rates

14

Earnings Growth vs Valuations:Consensus expectations for Asia and the World

More realistic earnings growth expected in Asia vs US,and Asian valuations are offering attractive investment entry level

* Excludes Australia, HK and SingaporeSource: JPM, IBES (10/2008)

P/E (E) EPS Growth (%) Div. Yield ROE (%)

2008 E 2009 E 2008 E 2009 E 2008 E 2008 E

World 8.5 7.6 3.1 11.1 4.4 15.5

US 9.7 8.6 6.1 12.4 3.3 17.1

Emerging Asia * 8.1 7.3 1.4 11.1 4.7 15.4

15

Asian Equity Markets Valuation:Lowest over past 18 years !

Fundamental ‘Buy’ signal hoisted, based on very cheap valuation

Source: Credit Suisse (10/2008)

Credit Suisse’s Asian Markets - 6 Factor Valuation Indicator

Asia ex-Japan Historic P/E

200

600

1000

1400

1800

2200

Pri

ce

In

de

x

-40

-20

0

20

40

60

6 f

acto

r A

sia

n v

alu

ati

on

in

dic

ato

r

"Buy" signal

Fairly Valued

30% overvalued

11 May 0420-Apr-05

19-Oct-056-Jun-06

05-Sep-08

Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

5

10

15

20

25

30

Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08

Asia ex-JP - PE

16

Concluding Remarks:Stay defensive for now, and looking for re-entry points

We expect to see more policy action

In the meantime we remain cautious

We remain defensive, focusing on quality stocks with strong valuation support

But opportunities will present themselves

Looking to accumulate stocks with distressed valuation and high net free cash flow


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Appendix:

Can China Save the World ?

18

The Emerging World:Share of World GDP – Long-Term Perspective

Source: UBS (8/2008)

The emerging force of the Emerging World !

0%

1%

2%

3%

4%

5%

6%

7%

1960 1970 1980 1990 20000%

10%

20%

30%

40%

50%

60%

70%

80%Developed countriesEmerging marketsEmerging growth share (right scale)

Contribution to world growth (pp) Share of world growth (%)

19

China vs Other Emerging:Share of World GDP (in 2005 Dollars)


0%

5%

10%

15%

20%

25%

30%

35%

40%

1960 1970 1980 1990 2000

Other emerging markets China

Emerging share of global GDP (2005 dollars, %)

China’s economic importance has been steadily rising

20

China And Other Emerging:Share of World GDP in 2007 (in current 2007 dollars)


Japan8%

US26%

Other developed

4%

Europe31%

Other emerging

19%

Brazil2%

China6% India

2% Russia2%

World (2007) = US$54.3 tnEmerging (2007) = US$17.2 tn

Emerging: 31% …. Developed World: 69%

World (2007 PPP) = US$65.0 tnEmerging (2007 PPP) = US$30.8 tn

Japan7%

US21%

Other developed

3%

Europe21%

Other emerging

26%

Brazil3% China

11%

India5%

Russia3%

Emerging: 48% …. Developed World: 52%

21

Contribution To World GDP Growth:The rise of China and other emerging


4.3% GDP growth in 2007: China 0.8% , Other EM: 1.8% , Developed: 1.7%

Contribution to world GDP growth(‘blended’ weights – PPP and 2007 dollars)

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1960 1970 1980 1990 2000

Developed countriesChinaOther emerging markets

22

China (as a percentage of the developed world*)

* using the US, Japan and 27 European countries as a proxy for the developed worldSource: Credit Suisse (8/2008)

8.6

5.06.4

17.0

30.7

0

5

10

15

20

25

30

35

GDP Private consumption Governmentconsumption

Fixed investment Exports% o

f C

hin

a to

US

+ E

U27

+ J

apan

(20

06)

China’s Place In The Developed World:Consumption vs Investment/Exports share

China claims a big share of the world’s exports and CAPEX spending

23

Drivers Of China’s GDP Growth:CAPEX and, recently, net exports

Source: Lehman (8/2008)

-10

0

10

20

30

40

50

60

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

% of total GDP

Net Export Consumption: Government

Gross Capital Formation (GCF) Consumption: Household

Private consumption, though rising, has not been as powerful as the growth in CAPEX

or net exports

-10

-5

0

5

10

15

20

25

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

(Co

ntr

ib t

o G

DP

gro

wth

, in

%)

Consumption: Household Consumption: Government

Gross Capital Formation (GCF) Net Export

How strong will the government boost domestic demand to offset a potential nil or negative

contribution of net exports in ’09 ?

24

China’s Fixed Asset Investment Growth:More volatile growth


10

15

20

25

30

35

40

45

Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08

Nominal fixed-asset investment Real fixed-asset investment

Chinese government’s principal tool for managing GDP growth !

YoY Growth (%)

25

China’s Retail Sales:Steady growth


8

10

12

14

16

18

20

22

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08

Real retail sales Nominal retail sales

Steady 12-13% annual growth in real terms

YoY Growth (%)

26

Can China Save The World ?No, but ……..

China has the flexibility of fiscal and monetary levers

China’s banking system is healthy and liquid

China’s inflation and interest rates are easing

China’s medium-term GDP growth expected to remain solid (8-10% p.a.)

Hence, China (and other Emerging nations) can help to smooth out the decline in global GDP growth

27

Important Information

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.

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: © 2008 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): October 27, 2008

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