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Khiem Do August 14, 2008

Khiem Do August 14, 2008. The Asia Pacific Fund, Inc. Investment Community Conference Call Asian Investment Outlook www.asiapacificfund.com. Table of Contents. Page Section 1: Asian Markets Review 2 - 5 Section 2: Asian Investment Outlook and Strategy 6 - 28. Section 1

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Khiem Do August 14, 2008

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  1. Khiem DoAugust 14, 2008 The Asia Pacific Fund, Inc. Investment Community Conference Call Asian Investment Outlook www.asiapacificfund.com

  2. Table of Contents PageSection 1:Asian Markets Review 2 - 5 Section 2: Asian Investment Outlook and Strategy 6 - 28

  3. 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 Asia Chinese Renminbi 7.01 6.85 2.3 New Taiwan Dollar 30.38 30.35 0.1 Hong Kong Dollar 7.78 7.80 -0.2 South Korean Won 990 1,046 -5.3 ASEAN Singaporean Dollar 1.38 1.36 1.4 Indonesian Rupiah 9,205 9,220 -0.2 Malaysian Ringgit 3.20 3.27 -2.1 Thai Baht 31.49 33.44 -5.8 Philippines Peso 41.77 44.90 -7.0 Indian Rupee 40.12 43.03 -6.8 VN Dong 16,110 16,842 -4.3 Most Asian currencies corrected vs the USD in the June quarter (except Renminbi and Sing $) *: + denotes an appreciation of the local currency vs the USD (and vice-versa) Source: Factset, Bloomberg

  5. Asian Stock Markets: Country Performance(3 month period to June 30, 2008) Gross return in USDCountry - Index (%) North AsiaMSCI China Free -3.5 MSCI Hong Kong Free -3.9 MSCI Korea Free -7.6 MSCI Taiwan Free -10.5 ASEANMSCI 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 -19.7 Vietnam (HCM Local price index) -22.7 ‘Growth’ markets of VN and India continued to fall sharply, while Singapore and HK/China fared relatively better Source: Factset, Bloomberg

  6. Asian Stock Markets: Sectoral Performance (3 month period to June 30, 2008) Gross return in USD (%) MSCI Energy 7.7 MSCI Consumer Staples -0.4 MSCI Utilities -2.8 MSCI Financials -5.5 MSCI Materials -6.4 MSCI Information Technology -8.3 MSCI Telecommunication Services -8.8 MSCI Industrials -10.7 MSCI Real Estate -11.4 MSCI Consumer Discretionary -13.0 MSCI Health Care -17.1 Defensives (Energy, Consumer Staples) led, while Cyclicals (Consumer Disc., Real Estate) lagged Source: Factset

  7. Section 2 Asian Investment Outlookand Strategy

  8. Performance of Global Asset Classes:Extremely challenging environment ! 3-Month Risk vs Return * 12-Month Risk vs Return * Only commodities, cash and high quality bonds produced positive returns Source: BCA Research (7/2008)

  9. Global Risk Appetite still Very Weak:Hide in government bonds or be brave and buy cheap equities ? Global Risk Appetite Since 1981 Risk index Investors , in general, have been hiding Source: Credit Suisse (7/2008)

  10. Risk Appetite:Global Emerging Markets/Asia vs US GEM/Asia Equity Risk Appetite Index US Equity Risk Appetite Index GEM/Asia at ‘panic’ levels, whereas US has recovered somewhat Source: Credit Suisse (7/2008)

  11. Significant Flows out of EM Asia:Precursor to Asian recession … or … other reasons? 10 (US$bn) 8 6 4 2 - 2.6 (2) 0.7 (4) (6) (8) (10) (5.4) (5.8) (12) (14) (16) (18) (12.9) (20) Monthly Net Foreign Buying in EM Asia (15) (15) (18) Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 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)

  12. Current Concerns in Equity Markets:‘Perfect storm’ of negative expectations! • Fear of oil prices climbing to $ 200/bbl • Fear of economic stagflation • Fear of global and regionalinflation rates remaining high,inducing OECD Central banks to potentially make a mistake by tightening policy too soon and by too much • Fear of further significantcapitalrequiredto 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 With so many ‘fears’, is there room for being a contrarian ?

  13. Asia vs World:Relative performance over past decade(As at June 30, 2008) MSCI Price Returns – Annualised (in USD terms) After this year’s short-term setback, Asia’s out-performance is expected to continue Source: Bloomberg (7/2008)

  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 • 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 arelooking for a change in sentiment Potential upside risk in equity markets in H2 ?

  16. US Financial Crisis:An update of our check-list Positive newsflows still lacking!

  17. Oil Price:Where are we in the long cycle ? Real Oil Price Oil Price (in real terms) It appears that the oil price is close to reaching a long-term peak Source: Credit Suisse (7/2008)

  18. World Oil Demand:Who consumes more (or less) in 2008 (mm bbl/day)? Mm bbl/day 0.50 0.41 0.33 0.24 0.12 0.08 0.05 0.05 0.01 0.00 (0.50) (0.49) North America China MiddleEast Latin America OtherAsia FSU Pacific (Japan) Africa Europe Recent slowing of Chinese and other economies, plus substitution effects, are expected to cause slower demand growth for oil Source: JP Morgan (7/2008)

  19. Global Retail Petrol Prices:China vs rest of world (price in US$/litre) US$/litre 3.0 2.5 2.0 1.5 1.0 0.5 0.0 US Iran India UAE Brazil China Japan Britain Russia France Norway Thailand Denmark Germany Malaysia Indonesia Singapore Philippines Venezuela Hong Kong South Korea Saudi Arabia Despite subsidies, pricing gap between China and US is narrowing Source: JP Morgan (7/2008)

  20. China & Asia’s Core vs Headline Inflation:Headline: worrying …………..… Core: still tame 10 8 7 8 6 6 5 4 4 3 2 2 1 - 0 (2) -1 Asia ex-Japan China YoY % YoY % CPI Non-food CPI CPI Core CPI Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Chinese headline inflation appeared to have peaked, but other Asian counterparts still at high levels Source: Morgan Stanley (7/2008)

  21. Inflation in China:Food vs non-food YoY% CPI - Food CPI – Non-Food Food price inflation holds the key to China’s inflation Source: JP Morgan (7/2008)

  22. Food Price Inflation in China:Pork price holds the key (RMB/kg) (RMB/kg) 32 32 32 Pork price - 2008 Pork price 30 30 30 28 28 28 Pork price Pork price - 2007 26 26 26 24 24 24 22 22 22 20 20 20 18 18 18 Pork price Pork price - 2006 16 16 16 14 14 14 12 12 12 10 10 10 Jan Jan Jan Feb Feb Feb Mar Mar Mar Apr Apr Apr May May May Jun Jun Jun Jul Jul Jul Aug Aug Aug Sep Sep Sep Oct Oct Oct Nov Nov Nov Dec Dec Dec Pork price still high, but price trend has flattened out Source: JP Morgan (7/2008)

  23. China’s Key Macro Variables: Past over-heating periods vs now Growth Rate (% p.a.) 80 76.0% 70 60 58.0% 50 49.0% 47.0% 42.0% 40 40.0% 40.0% 35.0% 30 29.0% 26.0% 25.0% 20 20.0% 19.0% 18.0% 15.0% 10 1.7% 0 Now 84-85 Now 88-89 88-89 93-94 84-85 Now 84-85 84-85 88-89 88-89 93-94 93-94 93-94 Now Money (M2) Growth Loan Growth Fixed Asset Investment Growth Non-food Inflation Current cycle milder than past over-heating episodes: no need for aggressive tightening by PBOC ? Source: JP Morgan (7/2008)

  24. Profit Outlook of Asia vs US:Fundamental factors continue to favour Asia Index Index 115 130 2009 110 125 2009 105 120 115 100 2008 110 95 2008 105 90 100 85 95 Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08 Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08 EPS index (2008/09: starting at 100 on base date of February ‘07) US: Down revisions still dominate Asia Pacific Ex-Japan: Stable revisions Stable Asian earnings revisions vs US down trend Source : JP Morgan (7/2008)

  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 Australia Source: Goldman Sachs, IBES (7/2008)

  26. Asian Equities vs Asian Bonds: Equities appear very cheap, but …… 4 700 3 600 2 500 1 0 400 -1 300 -2 -3 200 -4 100 -5 -6 - APXJ Price (%) Apr-95 Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07 10Y Bond Yield - Fwd Earnings Yield (%) Avg. -1 Std dev Avg. +1 Std dev US$ Price (Right) ….. higher investor confidence and risk appetite needed to close the gap Source: Morgan Stanley (7/2008)

  27. Asia Pacific ex Japan Equity Markets:Price and P/E trends MSCI Price Index 900 800 25x 700 22x 600 500 19x 400 16x 300 13x 200 100 0 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 MSCI AC Asia Pacific ex Japan (Price Index vs P/E Band) Attractive valuation Source: Morgan Stanley (7/2008)

  28. Is the US Equity Market Close to the Bottom?Past 150 years’ cycle study say …… US Real Equity Returns: Declines from Peak Index of Real Return ….. probably Yes ! Source: Credit Suisse (7/2008)

  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. Disclosure for presentations to PUBLIC Ensure Complied Date is added at foot of Disclosure Complied (Boston): August 1, 2008

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