khiem do august 14, 2008

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

August 14, 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 - 5

Section 2: Asian Investment Outlook and Strategy 6 - 28


Tel +852 2841 1411

www.barings.com


Section 1

Asian Markets Review

4

Local Currency exchange rate (US$/Local rate)(3 month period to June 30, 2008)

03/31/2008 06/30/2008 Change %*

North AsiaChinese Renminbi 7.01 6.85 2.3New Taiwan Dollar 30.38 30.35 0.1Hong Kong Dollar 7.78 7.80 -0.2South Korean Won 990 1,046 -5.3

ASEANSingaporean Dollar 1.38 1.36 1.4Indonesian Rupiah 9,205 9,220 -0.2Malaysian Ringgit 3.20 3.27 -2.1Thai Baht 31.49 33.44 -5.8Philippines Peso 41.77 44.90 -7.0

Indian Rupee 40.12 43.03 -6.8VN Dong 16,110 16,842 -4.3

*: + denotes an appreciation of the local currency vs the USD (and vice-versa)Source: Factset, Bloomberg

Most Asian currencies corrected vs the USD in the June quarter (except Renminbi and Sing $)

5

Asian Stock Markets: Country Performance(3 month period to June 30, 2008)

‘Growth’ markets of VN and India continued to fall sharply, while Singapore and HK/China fared relatively better

Gross return in USDCountry - Index (%)

North AsiaMSCI China Free -3.5MSCI Hong Kong Free -3.9MSCI Korea Free -7.6MSCI Taiwan Free -10.5ASEANMSCI Singapore Free -0.9MSCI Indonesia Free -4.5MSCI Malaysia Free -9.1MSCI Thailand Free -11.8MSCI Philippines Free -24.8

MSCI AC Far East Free Ex Japan Gross -6.4

MSCI India Free -19.7Vietnam (HCM Local price index) -22.7

Source: Factset, Bloomberg

6

Asian Stock Markets: Sectoral Performance (3 month period to June 30, 2008)

Source: Factset

MSCI Energy 7.7MSCI Consumer Staples -0.4MSCI Utilities -2.8MSCI Financials -5.5MSCI Materials -6.4MSCI Information Technology -8.3MSCI Telecommunication Services -8.8MSCI Industrials -10.7MSCI Real Estate -11.4MSCI Consumer Discretionary -13.0MSCI Health Care -17.1

Gross return in USD(%)

Defensives (Energy, Consumer Staples) led, while Cyclicals (Consumer Disc., Real Estate) lagged


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Section 2

Asian Investment Outlookand Strategy

8

Performance of Global Asset Classes:Extremely challenging environment !

Source: BCA Research (7/2008)

3-Month Risk vs Return * 12-Month Risk vs Return *

Only commodities, cash and high quality bonds produced positive returns

9

Global Risk Appetite still Very Weak:Hide in government bonds or be brave and buy cheap equities ?

Investors , in general, have been hiding

Source: Credit Suisse (7/2008)

Risk indexGlobal Risk Appetite Since 1981

10

Risk Appetite:Global Emerging Markets/Asia vs US

GEM/Asia at ‘panic’ levels, whereasUS has recovered somewhat


GEM/Asia Equity Risk Appetite Index US Equity Risk Appetite Index

11

Significant Flows out of EM Asia:Precursor to Asian recession … or … other reasons?

Recent selling likely caused by de-risking by foreign investors and switching out of Asia to other OECD and EM markets

Note: EM Asia here includes India, Indonesia, Korea, Taiwan, Thailand and the Philippines.Source: Morgan Stanley (7/2008)

(5.8)

(12.9)

(15)

(5.4)

0.7

(18)

2.6

(15)

(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 Jan-08 Jul-08

Monthly Net Foreign Buying in EM Asia

(US$bn)

12

Current Concerns in Equity Markets:‘Perfect storm’ of negative expectations!

With so many ‘fears’, is there room for being a contrarian ?

Fear of oil prices climbing to $ 200/bbl

Fear of economic stagflation

Fear of global and regional inflation rates remaining high, inducing OECD Central banks to potentially make a mistake by tightening policy too soon and by too much

Fear of further significant capital required to re-capitalise the US and UK/European financial systems > dilution to current shareholders

Fear of losing money by investing in equities in the short-term, despite more attractive valuations

13

Asia vs World:Relative performance over past decade(As at June 30, 2008)

After this year’s short-term setback, Asia’s out-performance is expected to continue

-22.1

-7.7

16.820.2

11.1

-11.7 -12.5

6.910

2.6

-25

-20

-15

-10

-5

0

5

10

15

20

25

YTD 1 Year 3 Years 5 Years 10 Years

(%)

MSCI AC Asia ex JP Index

MSCI World Index

Source: Bloomberg (7/2008)

MSCI Price Returns – Annualised (in USD terms)

14

Our Key Long-Term Views:Secular Asian equity bull trend, interrupted

Asia – Positive long-term fundamentals remains intact

Secular growth driven by domestic demand

Supportive liquidity – excess domestic savings, healthy banking system

Attractive equity valuations, and lowly-geared corporate balance sheets

Short-term issues – 1) Have oil prices peaked; and 2) Has the US equity market bottomed ?

15

Barings’ Base Case Scenario:Cautiously optimistic

Potential upside risk in equity markets in H2 ?

Long-lasting and severe US recession ? Barings forecasts flat growth

Asian economies’ GDP growth to slow ? Mid-term cycle correction in long up-cycle, but no recession

China’s PBOC to ease off on monetary tightening in H2 ’08 as inflation appeared to have peaked ? Recent signals appear more positive

Equities becoming more attractively priced, but risk aversion remained high and excess liquidity allocated towards equities was low: We are looking for a change in sentiment

16

US Financial Crisis:An update of our check-list

Positive newsflows still lacking!

Conditions for Market StabilisationCurrent status in

the US

Weakening currency

Monetary easingNow neutral

Bottoming out of housing sectorNot quite there yet

Re-capitalization, if not nationalization, of financial institutions Not quite there yet

Clearance in credit marketsNot quite there yet

Share price stabilization on earnings downgradesNot quite there yet

17

Oil Price:Where are we in the long cycle ?

It appears that the oil price is close to reaching a long-term peak


Real Oil PriceOil Price (in real terms)

18

World Oil Demand:Who consumes more (or less) in 2008 (mm bbl/day)?

Recent slowing of Chinese and other economies, plus substitution effects, are expected to cause slower demand growth for oil

Source: JP Morgan (7/2008)

0.410.33

0.24

0.120.08 0.05 0.05

0.01

(0.49)

China MiddleEast

LatinAmerica

OtherAsia

FSU Pacific(Japan)

Africa Europe NorthAmerica

0.50

(0.50)

0.00

Mm bbl/day

19

Global Retail Petrol Prices:China vs rest of world (price in US$/litre)

Despite subsidies, pricing gap between China and US is narrowing


0.0

0.5

1.0

1.5

2.0

2.5

3.0

Nor

way

Den

mar

k

Ger

man

y

Brit

ain

Fra

nce

Hon

g K

ong

Sou

th K

orea

Sin

gapo

re

Bra

zil

Japa

n

Phi

lippi

nes

Indi

a

Tha

iland US

Rus

sia

Chi

na

Indo

nesi

a

Mal

aysi

a

UA

E

Sau

di A

rabi

a

Iran

Ven

ezue

la

US$/litre

20

China & Asia’s Core vs Headline Inflation:Headline: worrying …………..… Core: still tame

Chinese headline inflation appeared to have peaked, but other Asian counterparts still at high levels

Source: Morgan Stanley (7/2008)

Asia ex-Japan China

-1

0

1

2

3

4

5

6

7

8

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

YoY %

CPI Core CPI

(2)

-

2

4

6

8

10

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

CPI Non-food CPI

YoY %

21

Inflation in China:Food vs non-food

Food price inflation holds the key to China’s inflation


0%

5%

10%

15%

20%

25%

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

CPI - Food CPI - Non-food

CPI - Food

CPI – Non-Food

YoY%

22

Food Price Inflation in China:Pork price holds the key

Pork price still high, but price trend has flattened out


10

12

14

16

18

20

22

24

26

28

30

32

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Pork price

Pork price

Pork price

(RMB/kg)

10

12

14

16

18

20

22

24

26

28

30

32

10

12

14

16

18

20

22

24

26

28

30

32

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecJan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Pork price - 2007

Pork price - 2008

Pork price - 2006

(RMB/kg)

23

China’s Key Macro Variables: Past over-heating periods vs now

Current cycle milder than past over-heating episodes: no need for aggressive tightening by PBOC ?


40.0%

35.0%

47.0%

20.0%

29.0%26.0%

49.0%

40.0%

58.0%

42.0%

76.0%

19.0%18.0%15.0%

25.0%

1.7%

Money (M2) Growth Loan Growth Fixed Asset Investment Growth Non-food Inflation

84-85 88-89 93-94 Now 84-85 88-89 93-94 Now 84-85 88-89 93-94 Now 84-85 88-89 93-94 Now0

10

20

30

40

50

60

70

80

Growth Rate (% p.a.)

24

Profit Outlook of Asia vs US:Fundamental factors continue to favour Asia

Stable Asian earnings revisions vs US down trend

US: Down revisions still dominate Asia Pacific Ex-Japan: Stable revisions

Source : JP Morgan (7/2008)

EPS index(2008/09: starting at 100 on base date of February ‘07)

95

100

105

110

115

120

125

130

Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08

2008

2009

Index

85

90

95

100

105

110

115

Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08

2008

2009

Index

25

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

More sustainable earnings growth expected in Asia/EM,yet valuations of the latter still cheaper than US

* Excludes AustraliaSource: Goldman Sachs, IBES (7/2008)

World

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

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

12.2 10.6 10.8 15.6 3.2 15.4

US 13.8 11.5 8.4 19.9 2.3 16.8

Emerging Markets 11.5 10.0 19.5 14.6 3.2 18.8

Asia Ex-Japan * 12.6 10.9 9.8 15.8 3.1 15.6

26

Asian Equities vs Asian Bonds: Equities appear very cheap, but ……

….. higher investor confidence and risk appetite needed to close the gap


APXJ Price

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Apr-95 Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07

-

100

200

300

400

500

600

700

10Y Bond Yield - Fwd Earnings Yield (%) Avg. -1 Std dev

Avg. +1 Std dev US$ Price (Right)

(%)

27

Asia Pacific ex Japan Equity Markets:Price and P/E trends

Attractive valuation


MSCI AC Asia Pacific ex Japan (Price Index vs P/E Band)

MSCI Price Index

0

100

200

300

400

500

600

700

800

900

Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07

25x

22x

19x

16x

13x

28

Is the US Equity Market Close to the Bottom?Past 150 years’ cycle study say ……

….. probably Yes !


US Real Equity Returns: Declines from Peak

Index of Real Return

29

Asia Pacific Fund’s Portfolio Strategy

What has changed? Investors’ risk appetite has weakened further as equity investors were hit by four

factors: oil price spike, stagflation, the US financial crisis, and monetary tightening bias in growth economies of BRIC

Signs of “capitulation” selling in Asian equities in June/July We have lowered the portfolio’s beta and active risk over the past 6 months

What has not changed? Portfolio favoring large caps and stable growth to cyclical growth Portfolio still focused on sectors with a sustainable growth trend, including

domestic consumption, infrastructure and asset reflation Portfolio looking to add back selective growth stocks in periods of severe market

weakness, as it seems that we are close to an important market low

30

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.

Complied (Boston): August 1, 2008

khiem do august 14, 2008

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