Baring Asset Management (Asia) Limited 19 th 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. www. asiapacificfund. com September 2007
Baring Asset Management n Principal business lines: Institutions, Mutual Funds, Private Clients & Alternative Investments n Current assets under management US$46. 3 bn (Global), US$9. 3 bn (Asia) n 4 main investment offices covering each major financial time-zone. n Long history of investing from a local presence: London 1955 Hong Kong 1976 Boston 1978 Tokyo 1982 n London Toronto Boston 109 investment professionals: proven, experienced team n San Francisco Owned by Massachusetts Mutual Life Insurance Company (Mass. Mutual) Tokyo Guernsey Assets as at 30 th June 2007 Investment Professionals as at 1 st June 2007 1 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) Paris Frankfurt Taipei Hong Kong
The Asia Pacific Fund, Inc. Long-Term Performance (Cumulative NAV Returns over 1, 3, 5 and 10 year periods to July 31, 2007) Morningstar Ranking 18/202 28/175 33/149 8/85 Fund performance are bid to bid, net of fees, gross income, US$. For risks associated with investment securities in emerging and less developed markets, please refer to the Offering Document for details. Transactions in derivatives, warrants and forward contracts and other fund derivatives instruments may be used for the purpose of meeting the investment objective of the Fund. The Net Asset Value of the Fund may have a high volatility due to these instruments and techniques being included in its scheme property and may involve a greater degree of risk. Past performance is not an indication of future performance. Data source - © 2007 Morningstar, Inc. All Rights Reserved; data as at 31/07/2007. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 2 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Our Team and Process
Executive Summary § Performance driven team - clear accountability and quick decision making § Experienced investment professionals - deep market and stock knowledge § High conviction portfolios – no unintended positions § Research focuses on what matters § Tight risk management – including proprietary risk measures § GARP style accommodates market leadership changes Our competitive advantage is our people 4 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
The Asian Team Henry Chan Greater China Agnes Deng Franki Chung Edward Wang Soo-Hai Lim ASEAN (incl. Singapore) Korea India Kai Yang Lee Hyung Jin Lee Manoj Shroff William Fong Adrian Au Australia / New Zealand Henry Chan Global Sector Team 5 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) Eunice Hong Global Emerging Market Team Strategic Policy Group Khiem Do
GARP – Growth at a Reasonable Price CHEAP Valuation EXPENSIVE Growth HIGH Growth at a Reasonable Price Value Traps Torpedoes LOW Combined discipline of growth and valuation 6 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
How we structure our research Common language structures our judgemental decisions Applied to both countries and companies Research Potential for growth surprise Growth Ability to finance growth Liquidity Sensitivity to currency, currency outlook Currency Strategy and execution Management Is the outlook reflected in the price? Valuation Research key to good idea generation 7 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Setting Research Priorities Reducing a large universe to focused Buy/Sell candidates Stock Universe Positive & Negative Quantitative Screens Company Meetings BAM Top Down and Sector Views Overseas Trips Local Contacts & Newsflow Analyst Discussions Stock ideas Client Portfolio Source: Baring Asset Management 8 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Buy Disciplines We buy when we identify n Under-appreciated earnings growth prospects n Undervaluation, based on comprehensive understanding of corporate strategy, fundamentals and peer comparables n Catalysts that will lead to the stock being re-rated within a defined time frame 9 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Sell Disciplines Triggers for Stock Review n Stock reaches our target price n We detect deterioration in fundamental outlook 10 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Baring Asia High Alpha Investment Approach § Best bottom-up opportunities as the key building block – benchmark helps risk management and sizing of positions § Positive bets against the comparative index – either overweight or no exposure, eliminate underweight & neutral bets § Mixed market cap – do not focus on large cap only § Higher stock concentration for large cap stocks – no need to own two stocks for same trade. § More diversified on small to mid-cap stocks to avoid “accidents” as a result of under-coverage by analysts, lower management quality, illiquidity, etc. § More flexible use of cash expected § More flexible use of non-index bets 11 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Themes and Outlook
Asia Pacific – Major Investment Themes n China consumption and the rise of the middle class n Regional asset reflation – Singapore, Indonesia, Taiwan, Malaysia and the Philippines n M&A theme driven by overseas expansion of PRC companies n Petro-dollar recycling “Middle East construction boom” – shipbuilding, oil services and engineering n Reconstruction of Asia – engineering, construction, building materials, capital goods n Improved supply side discipline of “cyclical” sectors – energy, materials, technology 13 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) Consumption, Asset Reflation and Re-construction
China: Rising Income GDP/Capita USD Source: UBS (06/2007) n GDP per capita surpassed the magical US$1, 000 threshold since 2003 n Emerging middle income class!! 14 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Chinese equities’ rally: Heading towards a ‘bubble’ ? % change since Jan 02 for China; Jan 82 for elsewhere 2, 500 2, 000 China Korea Taiwan Japan 1, 500 1, 000 500 0 -500 Month 1 M 13 M 25 M 37 M 49 M 61 M 73 M 85 M 97 M 109 M 121 Source: Macquarie Bank (6/2007) As with Japan, Korea and Taiwan in the 80 s …. will a Chinese market ‘bubble’ materialise? 15 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Overseas Expansion of PRC Companies Drives M&A Theme China’s Net FDI overseas Source: CSFB (7/2007) 16 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Singapore: Office rental to rise Demand to outstrip supply Rental costs as percentage of GDP Rental costs/GDP 14% Rental 8 7 12% 6 10% 5 (m sf) (%) 4. 0 96 94 3. 0 92 90 2. 0 88 8% 4 6% 3 86 1. 0 4% 2% -1. 0 - 0% 82 0. 0 1 84 2 80 78 76 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Rental Rates Rental costs/GDP -2. 0 74 1995 1997 1999 Net supply (LHS) 2001 2003 2005 2007 F Take-up (LHS) 2009 F Occupancy (RHS) Source: Deutsche Bank (6/2007) Positive for office landlords 17 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Taiwan Domestic The Most Undiscounted Reflation Story Property price recovery an early indicator of asset reflation Rise in residential construction licence issuance Source: JP Morgan (6/2007) Domestic sector re-rating to continue 18 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Middle East Construction Boom Benefits Korea Engineering Companies New overseas construction orders by region 2005 (US$m) No. of projects 73 158 15 35 281 Middle East Asia Africa Other Total 2006 Value No. of projects Value y-y chg (%) 6, 445 2, 611 1, 275 528 10, 859 59 187 27 53 326 9, 530 4, 046 1, 557 1, 335 16, 468 47. 9 55. 0 22. 1 152. 8 51. 7 Source: Nomura (5/2007) Regional construction boom is coming! 19 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Taiwan: Bad Market but Good Stocks Source: Factset (8/2007) We invest in stocks, not markets 20 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Tech Consolidation : Hon Hai/Foxconn Empire Hon Hai Precision Consecutive EPS growth for more than 10 years Price Return 100 5000 90 4500 EPS Growth 12/06 12/05 12/04 12/03 12/02 12/01 12/00 12/99 12/98 12/97 12/94 12/96 0 12/95 0 2007 E 500 2006 1000 10 2005 1500 20 2004 30 2003 2000 2002 40 2001 2500 2000 3000 50 1999 3500 60 1998 70 1997 4000 1996 80 Source: Factset (6/2007) Phenomenal Growth of Subsidiaries EPS Growth 2007 E 2006 2005 2004 Foxconn International (2038 HK) +36% +83% +66% +100% Foxconn Tech (2354 TT) +58% +76% +71% +14% +243% +523% - Innolux Display (2481 TT() 21 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) - Source: Bloomberg (6/2007) A true growth stock!
Resources Upcycle to Continue on Chinese Demand The Ebb and flow of Resource performance All Mining Index 1936 to Current Index on log scale 10000 The rise of China? 87 1000 Industrialisation of Japan OPEC 2 100 OPEC 1 10 1 36 41 46 51 56 61 66 71 76 81 86 91 96 01 06 Source: Macquarie Research & IRESS (8/2007) 22 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
Asia : Investment Strategy and Outlook n Expect another year of positive return and relative outperformance n China growth will drive reflation of the region n Earnings inflection point of export cyclicals such as technology n High alpha approach captures the best stock opportunities in the region and expresses conviction in portfolios n Bottom-up opportunities point to overweighting in China/HK, Singapore, Malaysia, Indonesia and the Philippines. Early signs of earnings inflection warrants gradual rebuilding of positions in Korea and Taiwan 23 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) Secular Growth in Asia Drives Out-performance
Appendix
The Asia Pacific Fund, Inc. Asset and Sector Allocations as at 31 st July 2007 Asset Allocation Fund (%) 31. 5 22. 5 25. 9 30. 5 Info. Technology 18. 1 18. 9 Industries 18. 8 14. 4 Materials 11. 1 7. 9 Con. Discretionary 8. 6 7. 0 Energy 5. 5 6. 6 Consumer Staples 3. 7 3. 4 Telecom. Services 3. 8 7. 5 Health Care 26. 8 Index * (%) Financials 21. 5 Korea Fund (%) 0. 0 0. 3 Cash & Others 3. 2 0. 0 Utilities 1. 3 3. 5 Index * (%) China Sector Allocation Hong Kong 8. 3 13. 7 Taiwan 19. 7 16. 2 Singapore 13. 1 8. 1 Thailand 0. 0 2. 5 Indonesia 2. 2 2. 6 Malaysia 3. 9 4. 3 Philippines 0. 7 0. 9 Cash & others 0. 3 India 0. 0 1. 2 0. 0 * MSCI AC Far East ex Japan (free) Source: Baring Asset Management 25 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
The Asia Pacific Fund, Inc. Top Ten Active Positions as at 31 st July 2007 Overweight Positions Underweight Positions Active Weight (%) Guangzhou R&F Properties 3. 5 China Petroleum & Chemical -0. 9 Yangzijiang Shipbuilding Holdings 3. 3 Industrial & Comm. Bank of China -1. 0 Xinhua A 50 China Tracker 2. 9 United Overseas Bank -1. 0 Zijin Mining Group 2. 2 CNOOC -1. 0 Innolux Display 1. 9 Singapore Telecommunications -1. 0 Firich Enterprises 1. 8 Cheung Kong (Holdings) -1. 1 China Merchants Bank 1. 8 Hutchison Whampoa -1. 2 Hengan International Group 1. 8 China Life Insurance -1. 6 Taiwan Fertilizer 1. 7 POSCO -1. 7 GS Engineering & Construction Corp 1. 7 Taiwan Semiconductor Manufacturing -2. 2 Source: Baring Asset Management 26 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
The Asia Pacific Fund, Inc. Portfolio Characteristics as at 31 st July 2007 Market Capitalization Comparison Portfolio Characteristics Fund Forward P/E 23. 9 19. 4 Price/Book 12. 2 4. 1 23. 3% 18. 8% Fund (%) Index * (%) Over US$10 bn 47. 4 59. 4 US$1 -10 bn 50. 2 39. 2 2. 1 1. 4 27. 8 36. 1 Index* ROE Below US$1 bn Weighted Avg (US$bn) Portfolio Turnover Risk Summary The rolling 12 month portfolio turnover as at 31 st July 2007 = 87. 4% Tracking Error vs. Index 5. 0% Beta vs. Index 1. 15 Portfolio Risk Index Risk * Index : MSCI AC Far East ex Japan (free) 27 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt) 19. 34% 16. 39% Source: Baring Asset Management
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 investmentioned 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 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): 5 September 2007 28 (S: Investment ManagementAccountsTangoPresentations 709 -Roadshow. ppt)
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