Transcript Slide 0

Baring Asset Management (Asia) Limited
19th Floor, Edinburgh Tower
15 Queen’s Road Central, Hong Kong
Tel: (852) 2841 1411
Fax: (852) 2868 4110
www.barings.com
THE ASIA PACIFIC FUND, INC.
Asian Investment Outlook
February 2007
Asia’s long-term outlook

Strong economic growth, boosted by rising domestic
consumption

Improving corporate returns

Undervalued currencies, fair value markets

Secular re-rating expected to continue

Asia: it’s harvest time !
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Have Asian markets returned to the Bull Super-cycle?
Year
Yearly Returns *
Volatility of returns
(in % terms)
2003
+45.0
16.3
2004
+17.6
14.4
2005
+21.8
15.4
2006
+32.2
12.5
* Note : MSCI AC Far East Free ex Japan index returns (in %, USD, gross terms)
Source: Baring Asset Management (1/2007)
Double digit annual returns,
decreasing volatility: the best of both worlds !
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Out-performance of Asia
Secular re-rating continued in 2006
Asia outperformed
over the last five years
60
40
20
0
(20)
(40)
(60)
2005
2003
2001
1999
1997
1995
1993
1991
1989
(80)
MSCI Asia ex-Japan return differential over MSCI World
MSCI Asia ex-Japan return differential over MSCI USA
Source : HSBC (12/2006)
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Asia’s out-performance
is expected to continue
Asia-5* : From Crisis to Solid Recovery
Asia-5 Current Account, $ bn
Asia-5 Fixed Investment % of GDP
36
80
34
60
12
10
8
40
32
30
28
6
20
4
0
2
0
-20
26
-40
24
Asia-5 Current account ($ bn)
-2
(% of GDP, RHS)
-4
2007F
2006F
2005
2004
2003
2002
2001
2000
1999
1998
1997
-6
1996
2007F
2006F
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-60
* Asia 5 : Korea, Thailand, Philippines, Indonesia, Malaysia
Source: Credit Suisse (11/2006)
Stronger discipline on CAPEX spending producing
a healthier current account balance
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The global importance of Asia
% Share of
US
Euroland
Asia*
World GDP
22
16
31
1
8
50
40
18
10
Official Reserves
Stockmarket Capitalisation
* Excludes Japan
Source: Goldman Sachs
Dec 06, based on end
2005 data
Gap between Asian market capitalisation and
strong economics to close in coming years?
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Asia: De-coupling from the US?
The correlation between Asia & US
Industrial Production growth trends
has declined
US Share of Asian Exports:
Lower Than Past Cycles
Export Share: Asia Pac ex-Japan, India & Australia
15%
High Correlation
Low Correlation
10%
5%
18%
100%
16%
90%
14%
80%
12%
70%
10%
60%
8%
6%
0%
4%
2%
-5%
0%
US
-10%
1980
-2%
AXJ
-4%
1983
1986
1989
1992
1995
1998
2001
2004
13.6%
14.9%
13.3%
12.9%
14.1%
14.3%
15.0%
14.7%
15.8%
14.6%
16.5%
16.2%
15.2%
15.1%
14.4%
14.9%
15.6%
16.0%
11.8%
12.8%
13.7%
13.9%
12.4%
11.9%
11.3%
10.5%
38.6%
34.7%
35.2%
36.5%
36.2%
38.5%
39.3%
40.1%
39.9%
20.0%
22.1%
22.4%
21.6%
20.7%
20.4%
18.9%
18.3%
17.8%
1997
1998
1999
2000
2001
2002
2003
2004
2005
13.3%
50%
40%
30%
20%
10%
0%
US
Asia Pac ex Japan
Japan
EU
Others
Source: Morgan Stanley (11/2006)
Not completely, but increasingly so
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Asia: De-coupling from the US?




China’s and India’s strong and sustainable growth have
increasingly provided an economic buffer to Asia
After seven years of belt tightening - since the 97-98
crisis - Asia has started to invest and consume
Asia’s wealth has been rising thanks to strong property,
equity and currency markets
This renewed confidence will likely help the domestic
economy of Asian countries to lessen their dependence
on exports to the US
A decade of sustainable growth
appears to have commenced
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China: Spending on big-ticket items, but ……
Sedan Sales in China
Property Prices in line with Income
1992 base 100
4,000
330
Housing price
36.0%
3,500
280
21.5%
3,000
19.3%
2,500
230
71.5%
2,000
180
1,500
56.4%
1,000
130
6.0% 12.3%
18.8% 24.0%
30.0%
500
16.7%
7.6%
-
80
1992
1994
1996
1998
2000
2002
2004
9M06
94
Rising property price
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96
97
98
99
00
01
02
03
04
05 YTD
Nov 06
Source: Citibank (12/2006)
Source: BNP Paribas Peregrine (12/2006)

95

Strong growth in Sedan sales
……… China’s savings ratio continued to rise !
Savings/GDP
(%)
50
45
40
35
30
25
20
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
Source: CEIC, CLSA (8/2006)
China’s income growth appears to grow at
a faster rate than consumption growth
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China has become a major lender (and investor),
while the US remains the world’s largest borrower
Major capital exporters and importers (% of total)
Other
countries
13.1%
Japan
14.4%
Other countries
22.3%
Turkey
1.9%
Algeria
1.9%
France
2.8%
China
13.9%
Venezuela
2.2%
Canada
2.3%
Kuwait
2.8% Singapore
2.9%
Netherlands
3.5%
Italy
2.4%
Australia
3.5%
United Kingdom
4.0%
Spain
6.9%
Germany
10.0%
Norway
4.3%
Switzerland
4.4%
Russia
7.2%
Saudi Arabia
7.9%
United States
65.4%
Source: UBS (11/2006)
Negative implications for the US dollar and positive
implications for Asian currencies … and gold?
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Barings’ Global forecasts for 2007
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US economy expected to grow more strongly in H2 ‘07
Europe expected to remain relatively buoyant, but Japan
more sluggish
G7 core inflation likely to remain around 2-2.5%
US monetary policy likely to remain on hold in H1, but
potential risk of renewed tightening in H2
Oil prices likely to trade between $US 50-80 /bbl
Still a relatively benign global backdrop,
but direction of US monetary policy and oil prices is key
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Barings’ Asia Pacific forecasts for 2007




China expected to continue to grow solidly (9–10%) and
drive the region
Other Asian economies likely to grow at long-term trend
rates
Asian central banks’ policy direction expected to be
mixed (Indonesia and Thailand to cut, China and India to
raise, while others to maintain a status quo)
Asia Pacific currencies likely to continue to strengthen
modestly vs the USD
Still a favourable regional economic backdrop
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Asian Market Valuation: At fair value
Country
PE
PBV
ROE
2006
2007
2006
2007
China
16.9
15.1
2.8
India
20.6
17.7
Indonesia
16.4
Malaysia
EPS Growth
2006
2007
2006
2007
2.4
18.4%
17.3%
16.0%
12.0%
4.8
3.8
27.4%
25.4%
21.0%
16.2%
13.0
3.2
2.9
21.5%
23.1%
23.0%
24.6%
16.6
14.4
2.0
1.9
13.3%
13.6%
20.0%
14.2%
Philippines
15.3
13.4
2.4
2.2
17.0%
16.8%
10.9%
14.6%
South Korea
12.3
10.5
1.5
1.4
12.7%
13.9%
Taiwan
Thailand
15.5
8.6
12.8
8.4
2.1
1.6
1.9
1.5
14.4%
20.7%
15.9%
18.6%
EM Asia
15.0
12.9
2.2
2.0
15.0% 16.1% 10.1% 17.7%
-8.4% 16.8%
14.4%
1.2%
20.5%
2.5%
* Based on H-Share Index
Source: Goldman Sachs (12/2006)
Korea and Thailand are relatively cheap,
while India and China are relatively expensive
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Chinese equities: ‘Bubble’ in the making ?




Similar to Japan (and Korea/Taiwan) in the 80s, one
notes: China’s ‘deflationary boom’ super-cycle, a
strengthening Renminbi, massive liquidity inflows, rerating of cheap equity market
China is undoubtedly THE growth story of this decade
‘Non-believers’ in China appear to be gradually
‘converted’
Each decade sees a bubble ….. so is this ……
….. China’s turn ?
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Chinese equities’ rally:
Heading towards a ‘bubble’ ?
% change since Jan 02 for China; Jan 82 for elsewhere
2,500
2,000
China
Korea
Taiwan
Japan
1,500
1,000
500
0
-500
Mth 1
M13
M25
M37
M49
M61
M73
M85
M97
M109
M121
Source: Macquarie Bank
(11/2006)
As with Japan, Korea and Taiwan in the 80s ….
will a Chinese market ‘bubble’ materialise?
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Chinese equities’ valuation:
Still reasonably low
PE ratios since Jan 02 for China;
Jan 82 for elsewhere
80
6
China
70
China
Japan
60
PB ratios since Jan 02 for China,
Jan 82 for Japan
5
Taiwan
Japan
4
50
3
40
30
2
20
1
10
0
0
Mth 1
M13
M25
M37
M49
M61
M73
M85
M97
M109 M121
Mth 1
M13
M25
M37
M49
M61
M73
M85
M97
M109 M121
Source: Macquarie Bank
(11/2006)
Compared to Japan, Korea and Taiwan in the 80s,
Chinese equities are nowhere near
‘bubble’ valuations yet
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Global risk appetite : neutral
10
Euphoria
8
6
4
2
0
-2
-4
Panic
-6
Jan-81
Jan-84
Jan-87
Jan-90
Jan-93
Jan-96
Jan-99
Jan-02
Jan-05
Source: Crdit Suisse (1/2007)
Still in neutral zone, as economies and
markets appear to be at equilibrium levels
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What are the potential RISKS in 2007 ?

China’s inflation rising to 5-6% (due to high food price
inflation ?), forcing PBOC to tighten monetary policy
more aggressively

Serious trade embargo by US on China

Severe US monetary tightening, leading to a recession


Re-escalating tensions in the Middle East, leading to
much higher oil prices
Significant loss of risk appetite for equities
Risks are real, but deemed as low probability events
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Asian Markets’ Outlook in 2007
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Consolidation in H1 after a strong Q4 ‘06
Medium-term prospects remain favourable, with China
expected to remain the centre of attraction
Korea and Taiwan could surprise on the upside in H2 ’07
Asian markets are expected to post another year of positive
returns in 2007
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Asia – Major Investment Themes

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China consumption and the rise of the middle class
Regional asset reflation – Singapore, Indonesia, Taiwan,
Malaysia
Petro-dollar recycling “Middle East construction boom” –
shipbuilding, oil services and engineering
Re-construction of Asia – engineering, construction, building
materials, capital goods
Improved supply side discipline of “cyclical” sectors – energy,
materials, technology
Consumption, Asset Reflation
and Re-construction
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Investment Professionals
KHIEM DO
Chair of Asia Multi Asset Group
Member of Targeted Solutions Portfolio Construction Group
Hong Kong
Investment Experience: 30 years
Khiem is responsible for the management of a number of specific Asian portfolios, and all Multi-Asset
portfolios for clients located in Asia. He was appointed to become a member of the Strategic Policy
Group, the company’s global macro research and asset allocation team in 2006. Khiem was the Head
of the Asia Pacific Specialist Investment Team from 1997 through 2006. He has been a co-manager of
the Baring China Absolute Return (long-short hedge fund) since July 2004. Khiem joined Baring Asset
Management in 1996 from Citicorp Global Asset Management in Sydney, where he was the Australian
Chief Investment Officer, the chair of the Australian Asset Allocation Committee, and a member of the
CGAM International Asset Allocation Committee. Khiem’s prior experience includes seven years at
Bankers Trust Australia and seven years at Equitilink Australia Ltd. Khiem received his B.A. in
Economics (Hons.) from Macquarie University (Australia). He was designated an Associate Member of
the Securities Institute of Australia (the Australian CFA equivalent) in 1979. Khiem is fluent in English,
Vietnamese, and French.
HENRY CHAN, CFA, CPA
Head of Asian Investment Team
Hong Kong
Investment Experience: 12 Years
Henry is responsible for the Asian investment policy and portfolio construction. He became the Head
of the Asian Investment Team in 2006. Henry joined Baring Asset Management in 2004 and assumed
the lead role in driving our Asian institutional mandates and flagship retail products, namely, Baring
Asia Growth and Baring Eastern Trust. At the specialist level, Henry is the co-manager the Baring
China Absolute Return Fund and Baring Korea Trust. Henry has extensive experience in the
management of both Asian regional and specialist mandates. Prior to joining Baring Asset
Management he worked at INVESCO (formerly LGT) where he handled a number of Pacific Basin
(including Japan) and Asia ex Japan portfolios. His specialist experience covered a number of markets
including Taiwan, Hong Kong, China, Korea and Japan. He was also the lead fund manager of
INVESCO Asia NET Fund, INVESCO GT Taiwan Fund and a number of Greater China portfolios. Henry
received his Bachelor Degree from the London School of Economics and Political Science in 1992. He
was awarded the CPA designation in 1994 and became a CFA in 1997. Henry speaks fluent English,
Cantonese and Mandarin.
.
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Last updated: 29th January 2007
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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. 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): January 29, 2007
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