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Baring Asset Management (Asia) Limited19th Floor, Edinburgh Tower
15 Queen’s Road Central, Hong KongTel: (852) 2841 1411Fax: (852) 2868 4110
www.barings.com
September 2007
THE ASIA PACIFIC FUND, INC.
www.asiapacificfund.com
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Baring Asset Management
Principal business lines:
Institutions, Mutual Funds, Private Clients & Alternative Investments
Current assets under management US$46.3 bn (Global), US$9.3 bn (Asia)
4 main investment offices covering each major financial time-zone.
Long history of investing from a local presence:
London 1955
Hong Kong 1976
Boston 1978
Tokyo 1982
109 investment professionals:proven, experienced team
Owned by Massachusetts Mutual Life Insurance Company (MassMutual)
Assets as at 30th June 2007Investment Professionals as at 1st June 2007
TorontoLondon
Guernsey
Paris
San Francisco
Boston
Tokyo
Taipei
Hong Kong
Frankfurt
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The Asia Pacific Fund, Inc. Long-Term Performance (Cumulative NAV Returns over 1, 3, 5 and 10 year periods to July 31, 2007)
Morningstar Ranking 18/202 28/175 33/149 8/85
71.6
167.0
231.6
161.1
54.6
147.7
209.0
64.2
0
20
40
60
80
100
120
140
160
180
200
220
240
1 Yr to 7/31/2007
3 Yrs to 7/31/2007
5 Yrs to 7/31/2007
10 Yrs to7/31/2007
(% )
Fund
MSCI AC F/E (Free) x J ap Gross
Fund performance are bid to bid, net of fees, gross income, US$. 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.
Our Team and Process
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Executive Summary
Our competitive advantage is our people
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
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The Asian Team
Henry Chan
EuniceHong
Korea
Hyung JinLee
Australia /New Zealand
ASEAN(incl. Singapore)
Kai Yang Lee
FrankiChung
FrankiChung
Soo-Hai Lim
Greater China
Global SectorTeam
Global Emerging Market Team
Strategic PolicyGroup
Khiem Do
India
Manoj Shroff
William Fong
HenryChan
AdrianAu
AgnesDeng
AgnesDeng
Edward Wang
7
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GARP – Growth at a Reasonable Price
Combined discipline of growth and valuation
ValuationCHEAP
HIGH
LOW
EXPENSIVE
Gro
wth
TorpedoesValue Traps
Growth at a Reasonable Price
8
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How we structure our researchCommon language structures our judgemental decisions
Research
Applied to both countries and companies
Is the outlook reflected in the price? Valuation
Potential for growth surprise Growth
Ability to finance growth Liquidity
Sensitivity to currency, currency outlook Currency
Strategy and execution Management
Research key to good idea generation
9
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Setting Research Priorities Reducing a large universe to focused Buy/Sell candidates
Stock Universe
Positive & Negative BAM Top Down Local ContactsQuantitative Screens and Sector Views & Newsflow
Company Overseas AnalystMeetings Trips Discussions
Stock ideas
Client PortfolioSource: Baring Asset Management
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Buy Disciplines
Under-appreciated earnings growth prospects
Undervaluation, based on comprehensive understanding of corporate strategy, fundamentals and peer comparables
Catalysts that will lead to the stock being re-rated within a defined time frame
We buy when we identify
11
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Stock reaches our target price
We detect deterioration in fundamental outlook
Triggers for Stock Review
Sell Disciplines
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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
Themes and Outlook
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Asia Pacific – Major Investment Themes
China consumption and the rise of the middle class
Regional asset reflation – Singapore, Indonesia, Taiwan, Malaysia and the Philippines
M&A theme driven by overseas expansion of PRC companies
Petro-dollar recycling “Middle East construction boom” – shipbuilding, oil services and engineering
Reconstruction of Asia – engineering, construction, building materials, capital goods
Improved supply side discipline of “cyclical” sectors – energy, materials, technology
Consumption, Asset Reflation and Re-construction
15
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China: Rising Income
GDP per capita surpassed the magical US$1,000 threshold since 2003
Emerging middle income class!!
Source: UBS (06/2007)
GDP/Capita
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2200
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Per Capita GDP
USD
16
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Chinese equities’ rally: Heading towards a ‘bubble’ ?
As with Japan, Korea and Taiwan in the 80s …. will a Chinese market ‘bubble’ materialise?
Source: Macquarie Bank (6/2007)
% change since Jan 02 for China; Jan 82 for elsewhere
-500
0
500
1,000
1,500
2,000
2,500
Month 1 M13 M25 M37 M49 M61 M73 M85 M97 M109 M121
China Korea
Taiwan Japan
17
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Overseas Expansion of PRC Companies Drives M&A Theme
China’s Net FDI overseas
Source: CSFB (7/2007)
18
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Singapore: Office rental to rise
Positive for office landlords
Source: Deutsche Bank (6/2007)
Rental costs as percentage of GDP Demand to outstrip supply
-
1
2
3
4
5
6
7
8
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
0%
2%
4%
6%
8%
10%
12%
14%
Rental Rates Rental costs/GDP
Rental costs/GDPRental
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
1995 1997 1999 2001 2003 2005 2007F 2009F
74
76
78
80
82
84
86
88
90
92
94
96
Net supply (LHS) Take-up (LHS) Occupancy (RHS)
(m sf) (%)
19
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Taiwan Domestic The Most Undiscounted Reflation Story
Property price recovery an early indicator of asset reflation
Rise in residential constructionlicence issuance
Domestic sector re-rating to continue
Source: JP Morgan (6/2007)
50
60
70
80
90
100
110
120
130
140
3Q91 3Q93 3Q95 3Q97 3Q99 3Q01 3Q03 3Q05
IndexTaipei City Taipei County
Taichung Kaoshiung
Taiwan
0
5000
10000
15000
20000
25000
30000
35000
40000
Oct-90 Oct-92 Oct-94 Oct-96 Oct-98 Oct-00 Oct-02 Oct-04 Oct-06
000 Units
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Middle East Construction Boom Benefits Korea Engineering Companies
Regional construction boom is coming!
New overseas construction orders by region
Source: Nomura (5/2007)
2005 2006
No. of No. of y-y chg (US$m) projects Value projects Value (%)
Middle East 73 6,445 59 9,530 47.9
Asia 158 2,611 187 4,046 55.0
Africa 15 1,275 27 1,557 22.1
Other 35 528 53 1,335 152.8
Total 281 10,859 326 16,468 51.7
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Taiwan: Bad Market but Good Stocks
Source: Factset (8/2007)
50
100
150
200
250
300
350
01/06 03/06 05/06 07/06 09/06 11/06 01/07 03/07 05/07 07/07
Hon Hai Precision Foxconn Taiwan Fertiliser
MSCI AC Far East MSCI Taiwan
We invest in stocks, not markets
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Tech Consolidation : Hon Hai/Foxconn Empire
A true growth stock!
Consecutive EPS growth for more than 10 years
Hon Hai Precision
Source: Factset (6/2007)
Phenomenal Growth of Subsidiaries
EPS Growth
2007E 2006 2005 2004
Foxconn International (2038 HK) +36% +83% +66% +100%
Foxconn Tech (2354 TT) +58% +76% +71% +14%
Innolux Display (2481 TT() +243% +523% - -
Source: Bloomberg (6/2007)
Price Return
0
10
20
30
40
50
60
70
80
90
100
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
E
EPS Growth
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
12
/94
12
/95
12
/96
12
/97
12
/98
12
/99
12
/00
12
/01
12
/02
12
/03
12
/04
12
/05
12
/06
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Source: Macquarie Research & IRESS (8/2007)
The Ebb and flow of Resource performanceAll Mining Index 1936 to Current
1
10
100
1000
10000
36 41 46 51 56 61 66 71 76 81 86 91 96 01 06
OPEC 1
OPEC 2
87
The rise of China?
Industrialisation of Japan
Index on log scale
Resources Upcycle to Continue on Chinese Demand
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Asia : Investment Strategy and Outlook
Expect another year of positive return and relative out-performance
China growth will drive reflation of the region
Earnings inflection point of export cyclicals such as technology
High alpha approach captures the best stock opportunities in the region and expresses conviction in portfolios
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
Secular Growth in AsiaDrives Out-performance
Appendix
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Fund Index *(%) (%)
China 31.5 21.5
Korea 22.5 26.8
Hong Kong 8.3 13.7
Taiwan 16.2 19.7
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 0.0
India 1.2 0.0
The Asia Pacific Fund, Inc. Asset and Sector Allocations as at 31st July 2007
* MSCI AC Far East ex Japan (free)Source: Baring Asset Management
Asset Allocation Sector Allocation
Fund Index *
(%) (%)
Financials 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 0.0 0.3
Cash & Others 3.2 0.0
Utilities 1.3 3.5
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The Asia Pacific Fund, Inc.Top Ten Active Positions as at 31st July 2007
Overweight Positions Underweight Positions
Source: Baring Asset Management
Active Weight(%)
Guangzhou R&F Properties 3.5
Yangzijiang Shipbuilding Holdings 3.3
Xinhua A50 China Tracker 2.9
Zijin Mining Group 2.2
Innolux Display 1.9
Firich Enterprises 1.8
China Merchants Bank 1.8
Hengan International Group 1.8
Taiwan Fertilizer 1.7
GS Engineering & Construction Corp 1.7
Active Weight(%)
China Petroleum & Chemical -0.9
Industrial & Comm. Bank of China -1.0
United Overseas Bank -1.0
CNOOC -1.0
Singapore Telecommunications -1.0
Cheung Kong (Holdings) -1.1
Hutchison Whampoa -1.2
China Life Insurance -1.6
POSCO -1.7
Taiwan Semiconductor Manufacturing -2.2
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The Asia Pacific Fund, Inc. Portfolio Characteristics as at 31st July 2007
Portfolio Characteristics
Fund Index*
Forward P/E 23.9 19.4
Price/Book 12.2 4.1
ROE 23.3% 18.8%
Portfolio Turnover
The rolling 12 month portfolio turnover as at 31st July 2007 = 87.4%
Risk Summary
Tracking Error vs. Index 5.0%
Beta vs. Index 1.15
Portfolio Risk 19.34%
Index Risk 16.39%
* Index : MSCI AC Far East ex Japan (free)
Market Capitalization Comparison
Fund Index *(%) (%)
Over US$10bn 47.4 59.4
US$1-10bn 50.2 39.2
Below US$1bn 2.1 1.4
Weighted Avg (US$bn) 27.8 36.1
Source: Baring Asset Management
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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. 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): 5 September 2007