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Khiem Do May 15, 2009

Khiem Do May 15, 2009. The Asia Pacific Fund, Inc. Global and Asian Investment Outlook www.asiapacificfund.com. China To Lead The World In 2009 ? Equity markets’ performance since 27/10/08. China up 63%, Asia up 39% and US down 1%. Source: Bloomberg (04/2009).

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Khiem Do May 15, 2009

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  1. Khiem DoMay 15, 2009 The Asia Pacific Fund, Inc. Global and Asian Investment Outlook www.asiapacificfund.com

  2. China To Lead The World In 2009 ?Equity markets’ performance since 27/10/08 China up 63%, Asia up 39% and US down 1% Source: Bloomberg (04/2009)

  3. US Economy:Where are we now ? -40 50% 40% -20 30% 0 20% 10% 20 0% 75 40 70 -10% 65 -20% 60 60 Tightening - Inverted S&P 500 (Y/Y) 55 -30% 50 80 45 -40% 40 100 -50% 35 Q1-98 Q1-93 Q1-94 Q1-95 Q1-96 Q1-97 Q1-99 Q1-04 Q1-00 Q1-01 Q1-02 Q1-03 Q1-05 Q1-06 30 Q1-91 Q1-92 Q1-07 Q1-08 Q1-09 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-07 Jan-09 Jan-93 Jan-05 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Recession Banks Tightening C&I Loans to Large Firms (%) (Left) S&P 500 Composite (EOP 1941-43=10) Banks Tightening C&I Loans to Large Firms (%) vs. S&P 500 (Y/Y) ISM Mfg: PMI Composite Index Index ‘Green shoots’ are appearing Source: Citi (4/2009)

  4. Global Economy:Where are we now ? 72 64 68 60 64 56 60 52 56 48 India 52 China (sa) 48 44 44 40 Russia 40 36 US 36 Brazil 32 Euro Area 32 UK 28 28 Japan 24 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-08 Jan-09 Jul-06 Jan-07 Jul-07 Jan-08 20 16 Jul-08 Jul-04 Jul-05 Jul-07 Jan-09 Jul-06 Jan-08 Jan-04 Jan-05 Jan-06 Jan-07 G4 Economies - PMI New Orders Emerging Economies - PMI New Orders Index Index ‘Green shoots’ are appearing Source: Credit Suisse (4/2009)

  5. Quantitative Easing:Every OECD central bank is doing it ….. Size index (100 at Jan ’07) 350 300 250 200 150 100 50 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Euro Area Japan UK US G3+ Central Bank Balance Sheet Size Positive for the trend of ‘risk’ assets ….. Source: Credit Suisse (4/2009)

  6. US Property Price Trend:We seem to get closer to the bottom ….. 7.40 Trend = 1.5% per annum 7.20 1 annualised SD = 6.9% 7.00 6.80 6.60 Aug 73 Jun 79 Jan 88 Jul 91 Nov 05 Okt 74 Sep 82 Dez 90 Apr 95 Feb 09 6.40 2.79 % 8.46 % 11.35 % 6.1 % 26.33 % 14 months 39 months 35 months 45 months 39 months 6.20 Jan 68 Jan 73 Jan 78 Jan 83 Jan 88 Jan 93 Jan 98 Jan 03 Jan 08 Real Average Existing House Price (log) US Real Average Existing House Price (log scale) Real house price Last two months’ prices showed a slight rise: encouraging sign ….. Source: Credit Suisse (4/2009)

  7. Asia’s Balance Sheet Revisited:Healthy 100% 90% Asia ex-Japan Net Debt-to-Equity Ratio GDP-wgt Loan-to-Deposit Ratio (major financial institutions) 95% 80% 70% 90% 60% 85% 50% 40% 80% 30% 75% 20% 10% 70% 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008E 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Asia ex HK/Sing Total External Debt as % of GDP 8 31 Asia ex HK/Sing Current Account Balance as % of GDP 6 4 26 2 21 0 -2 16 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 -4 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Asian corporate debt levels are close to 25 year lows Asian banks have capacity to lend The external position of Asia is healthier today than 20 years ago in terms of current account balance... ... as well as external debt levels % of GDP % of GDP Data prior to 1995 excludes Taiwan Data prior to 1995 excludes Taiwan It is most likely that Asia can weather this storm well Source: Citi (4/2009)

  8. Corporate Earnings Growth:Downgrades bottoming out US Asia Pacific ex-Japan Earnings Revisions Index Earnings Revisions Index Room for upward surprise in 2009 ? Source: JP Morgan (4/2009)

  9. Asian Equities’ Valuations:Challenging growth in 2008/09, recovery in 2010 ? * Market forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using I/B/E/S estimates. US trailing PE is calculated as per reported earnings. For all other markets and sectors, forecast numbers are derived from bottom-up calculations of each individual MSCI constituents using JPM estimates for covered stocks and I/B/E/S estimates for the rest. Companies with different yearends are calendarised to December yearends and are free float adjusted for aggregation. Historical numbers are from MSCI. Source: JP Morgan (4/2009)

  10. Asian Equities’ Valuation:P/B close to historical bottom 3.5 3.0 1.8x, both10- 2.5 and 30-yr avg 2.0 1.5 0.92x, MXASJ at 195 1.0 Jan75 Jan79 Jan83 Jan87 Jan91 Jan95 Jan99 Jan03 Jan07 MSCI AC Asia ex Jp PBV 0.5 P/B Cheap Source: Citi (4/2009)

  11. US Money Market vs Equities:Where’s the money ? 72% 14,000 69% 66% 12,000 63% 10,000 60% $Millions 8,000 57% 6,000 54% 4,000 51% 48% 2,000 45% 0 Jan-99 Jan-98 Jan-00 Jan-96 Jan-97 Jan-08 Jan-09 Jan-01 Jan-04 Jan-06 Jan-07 Jan-02 Jan-03 Jan-05 Q1-1996 Q1-1998 Q1-2000 Q1-2002 Q1-2004 Q1-2006 Q1-2008 Q1-1994 Q1-1990 Q1-1992 Q1-1988 S&P 500: Market Capitalization (Bil.$) Deposits + Corporate Cash S&P 500 Market Cap vs. Household Deposits & Currency + S&P 500 Non-Financial Corporate Cash Equity Mutual Fund Assets as a % of Total Assets (ex Institutional Money Market Assets) Note: 1Q09 reading for deposits and cash held steady from 4Q08 Mountain of cash in money markets ! Source: Citi (4/2009)

  12. Asian Excess Liquidity:Accelerating %YoY % Chg 20 100 80 15 60 10 40 5 20 0 0 -20 -5 -40 -10 -60 -15 -80 84 86 88 90 92 94 96 98 00 02 04 06 08 Asian Domestic Excess Liquidity (%YoY, LHS) MSCI AC Asia ex-Jp US$ Index 12-m % Chg (RHS) Bullish for share prices Source: Citi (4/2009)

  13. Risk Appetite for Asian Equities:Aversion or appetite ? Euphoria Distress Risk deviation in SDs from mean MSCI Asia index Risk aversion has abated, but risk appetite remains low Source: Citi (4/2009)

  14. Let’s Assume That US Equities Have Troughed:What is the upside potential ? S&P 500 Bear Markets and Subsequent Performance Peak to Trough 1 Year Performance Peak Trough Date Level Date Level % Change from Trough 120.85% 09/07/1929 31.92 06/01/1932 4.41 -86.18% 95.44% 09/07/1932 9.31 02/27/1933 5.53 -40.60% 5.29% 07/18/1933 12.20 10/21/1933 8.56 -29.82% 81.41% 02/05/1934 11.81 03/14/1935 8.06 -31.77% 29.18% 03/06/1937 18.68 03/31/1938 8.50 -54.48% 23.61% 11/09/1938 13.79 04/08/1939 10.19 -26.12% 9.24% 10/25/1939 13.21 06/10/1940 8.99 -31.94% 53.68% 11/09/1940 11.40 04/28/1942 7.47 -34.46% 21.12% 05/29/1946 19.25 05/17/1947 13.72 -28.75% 42.05% 06/15/1948 17.07 06/13/1949 13.55 -20.59% 31.02% 08/02/1956 49.75 10/22/1957 38.98 -21.65% 32.66% 12/12/1961 72.64 06/26/1962 52.32 -27.97% 33.21% 02/09/1966 94.06 10/07/1966 73.20 -22.18% 43.73% 11/29/1968 108.37 05/26/1970 69.29 -36.06% 38.01% 01/11/1973 120.24 10/03/1974 62.28 -48.20% 58.33% 11/28/1980 140.52 08/12/1982 102.42 -27.11% 22.78% 08/25/1987 336.77 12/04/1987 223.92 -33.51% 33.73% 03/24/2000 1527.46 10/09/2002 776.76 -49.15% 10/09/2007 1565.15 03/09/2009 676.53 -56.78% Average -37.23% 43.08% S&P 500 at 966 in March 2010 ? Source: Citi (4/2009)

  15. The Asian 8-year Market Cycle:Will 2009 be the trough for coming 8-year cycle ? 3.5 From trough-to-peak: 6yrs 2mths 3.0 3yrs 4mths 6yrs 2mths 2.5 4yrs 11mths 2.0 1.5 1.0 From trough-to-trough: 8yrs 7yrs 11mths 8yrs Trough in 2009? 0.5 Dec74 Dec78 Dec82 Dec86 Dec90 Dec94 Dec98 Dec02 Dec06 Dec10 MSCI AC Asia ex Jp PBV Last trough 2001 >>> next trough 2009? P/B (X) Good prospects for Asia’s re-rating Source: Citi (4/2009)

  16. Foreign Investors’ Flow Analysis for Asia:Back as buyer ? Total Net Flows for Asia (ex Mal/HK-China) USD 4.4 bn inflow in April month-to-date ! Source: Credit Suisse (4/2009)

  17. Fund StrategyLooking to add growth with focus on earnings delivery Change • We expect to see a continuation of relaxed macro policies globally, as short-term economic data is expected to remain weak • Asian economies, led by China, are expected to slow down cyclically, but remain solid structurally • With Asian equity valuations looking fair value, we continue to selectively add to growth/cyclicals on weakness • Stock selection focuses on earnings delivery following the strong share price rebound from distressed valuations

  18. 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. 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): May 13, 2009

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