Baring Asset Management (Asia) Limited

Baring Asset Management (Asia) Limited19th Floor, Edinburgh Tower

15 Queen’s Road Central, Hong KongTel: (852) 2841 1411Fax: (852) 2868 4110

www.barings.com

Khiem Do – Fund ManagerFebruary 13, 2008

THE ASIA PACIFIC FUND, INC.

Investment Community Conference Callwww.asiapacificfund.com

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Table of Contents

Page

Section 1: Asian Markets Review 2 - 5

Section 2: Asian Investment Outlook 6 – 30and Strategy

Section 1:

Asian Markets Review

4


Local Currency exchange rate (US$/Local rate)As at January 31, 2008

3 months 1 yearChange % * Change % *

North AsiaChinese Renminbi +3.9 +8.2Hong Kong Dollar -0.6 +0.2South Korean Won -4.6 -0.3New Taiwan Dollar +0.7 +2.4

ASEANThai Baht +2.9 +5.2Malaysian Ringgit +3.1 +8.2Philippines Peso +7.7 +20.6Singaporean Dollar +2.2 +8.4Indonesian 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 USDover the short- and long-term

5


Asian Stock Markets: Country PerformanceAs at January 31, 2008

Gross return in USD (%)

Country - Index 3 months 1 year

North AsiaMSCI China -35.2 36.2MSCI Hong Kong -14.7 22.8MSCI Korea -23.0 19.8MSCI Taiwan -21.6 0.4ASEANMSCI Thailand -10.9 36.7MSCI Indonesia -0.5 59.6MSCI Singapore -19.2 8.0MSCI Malaysia 2.9 31.2MSCI 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


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

Section 2:

Asian Investment Outlook and Strategy

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Asia’s Long-Term Outlook:We retain our positive stance

Sustainable growth, boosted by rising domestic demand

Improving corporate returns and healthy balance sheets

Under-valued currencies, under-valued equity markets

Secular re-rating of Asian assets expected to continue

9


Barings’ Global Economic forecasts for 2008

OECD G7 economies expected to grow at a slower rate, caused by weaker US consumption and much reduced new bank lending

But prospects for US recession still unlikely (less than 40% probability)

US Federal Reserve expected to continue to ease

Asian economies will likely feel some negative impact through weaker exports

Net, net, a more challenging global economic backdrop

10


Barings’ Asian Economic forecasts for 2008

Continuing growth in domestic demand expected to remain the key driver of growth in Asia, exports to weaken

China and India expected to continue to grow solidly

Asian currencies likely to continue to rise vs the USD

Key risks include rising inflation and tighter-than-expected monetary policy

Net, net, still a favourable economic backdropfor equity investors in the region

11


Current Concerns in Equity Markets

Fear of a US and global recession developing, causing risk aversion to dominate

Global and regional headline inflation rates to rise, forcing central banks to tighten more aggressively (or to cut rates by less)

Potential downgrade in corporate earnings

We are monitoring the above risks closely

12


Alternative Scenarios:Which one do you believe in ?

1) Severe US recession, and People’s Bank Of China (“PBOC”) to continue to tighten through 2008:

Equity markets could fall by a further 10-20%

2) US and OECD to ‘muddle through’, and PBOC to ease off on monetary tightening from Q2 ’08:

Equity markets likely to range trade in H1 and return to moderate bull trend in H2 (+10% ?)

3) Massive easing by the Fed, and PBOC to talk up Chinese economy and give green light to ‘through train’ in Q2:

Equity markets likely to range trade in Q1 and ‘skyrocket’ from Q2 (+20-30% ?)

Consensus appears to believe in Scenario 1 or 2 (depends on which day !?)

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

(18.3)

(14.8)

4.6

(14.8)

(20)

(18)

(16)

(14)

(12)

(10)

(8)

(6)

(4)

(2)

-

2

4

6

8

10

J an-03 J ul-03 J an-04 J ul-04 J an-05 J ul-05 J an-06 J ul-06 J an-07 J ul-07 J an-08

Monthly Net Foreign Buying in EM Asia

(US$bn)

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


Barings’ Base Case Scenario:Cautiously optimistic

US recession: less than 40% chance (Fed to cut rates by a further 75-100 bps, plus fiscal packages)

PBOC to ease off on monetary tightening from Q2 ’08: Tough now and more accomodative later

QDII / ‘through train’ : QDII to continue, and ‘through train’ …… possibly in Q2 ?

Potential upside risk from Q2 in Asia and HK China in particular?

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“In light of the recent changes in the outlook for and the risks to growth, additional policy easing may well be necessary''

“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks”

The Fed is Worried:More monetary and fiscal stimuli to come !

“Lai-See” for Asia ?

Source: Mr. Bernanke’s speech, 10/1/2008

17


Asian Economic De-Coupling from OECD:Korean exports example


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

35C

hin

a

AS

EA

N

Mid

dle

East

Lata

m

Em

erg

ing

Eu

rop

e

EU

US

Jap

an

2002-2006

YTD 2007

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Asia vs OECD World: Some signs of decoupling …..


…. 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


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

60C

hina

Hon

g K

ong

Tai

wan

Kor

ea

Sin

gapo

re

Mal

aysi

a

Tha

iland

Indo

nesi

a

Phi

lippi

nes

(% share)

20


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


Will Asian central banks act on headline orcore 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


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

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HK Banking system: Borrow, please !

Source: UBS (12/2007)

Banks are seriously cashed-up !

(%) $HK bn

Net deposit (RHS)

0%

50%

100%

150%

200%1

98

9

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

-2,800

-1,400

-

1,400

2,800

Total LDR (LHS)

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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


2007

2008

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Profit Outlook: Asia’s out-performers

China Singapore


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


2007

2008

96

104

112

120

128

136


2007

2008

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Profit Outlook:Selective in ASEAN

Indonesia Thailand


Mixed trends in ASEAN


95

105

115

125

135


2007

2008

82

86

90

94

98

102

106

110


2007

2008

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Profit Outlook :Asia’s recovery plays


Selective growth opportunities in Korea and Taiwan

Taiwan Korea


90

93

96

99

102

105

108

111

114


2007

2008

80

85

90

95

100

105

110

115


2007

2008

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Asian Equities vs. Asian Bonds: Equities still cheaper


Rising investor’s confidence neededto close the gap

(%) APXJ

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0A

pr-

95

Oct

-96

Apr-

98

Oct

-99

Apr-

01

Oct

-02

Apr-

04

Oct

-05

Apr-

07

-

100

200

300

400

500

600

700

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

Avg. +1 Std dev (LHS)MSCI_ Price_USD AP ex JP (RHS)

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Historical 12 months forward P/E BandMSCI Asia Index

Source: CSFB (1/2008)

100

200

300

400

500

600

700

Dec-96 Dec-99 Dec-02 Dec-05 Dec-08100

200

300

400

500

600

700

10X

12X

14X

16X

18X

At fair value ?

MSCI Asia Index

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China vs India:Which market out-performed over past 3 years ?

Source: Bloomberg (1/2008)

Equally strong

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Key Investment Themes for Asia

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

The more sustainable the high earnings growth trend, the more expensive the market is likely to become (i.e., India, China)

Favourable electoral outcomes in Korea, Taiwan and Thailand can turn these under-performing markets around dramatically

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The Fund’s Key Sectoral Investment themes

Consumption, infrastructure and financials themes

Other regional asset reflation plays

Re-construction of Asia – engineering, construction, building materials, capital goods

Improved supply side discipline of “cyclical” sectors – energy, materials (and technology ?)

Consumption, Asset Reflationand Infrastructure/Construction

32


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): February 4, 2008

Baring Asset Management (Asia) Limited

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