THE ASIA PACIFIC FUND, INC. Asian Investment Outlook

1. THE ASIA PACIFIC FUND, INC.Asian Investment Outlook February 2007

2. 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 !

3. Have Asian markets returned to the Bull Super-cycle? • Year Yearly Returns * Volatility of returns (in % terms) • 2003 +45.0 16.3 • +17.6 14.4 • +21.8 15.4 • +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 !

4. 60 40 20 0 (20) (40) (60) (80) 1989 1991 1995 1993 1997 2005 1999 2001 2003 MSCI Asia ex-Japan return differential over MSCI World MSCI Asia ex-Japan return differential over MSCI USA Out-performance of AsiaSecular re-rating continued in 2006 Asia outperformed over the last five years Source : HSBC (12/2006) Asia’s out-performance is expected to continue

5. 80 12 36 10 60 34 8 40 6 32 20 4 30 2 0 28 0 -20 -2 26 Asia-5 Current account ($ bn) -40 -4 (% of GDP, RHS) 24 -60 -6 1998 1996 1997 1999 2000 2005 2001 2002 2003 2004 2007F 2006F 2005 2001 2002 2003 2004 2000 1999 1996 1997 1998 2006F 2007F Asia-5* : From Crisis to Solid Recovery Asia-5 Current Account, $ bn Asia-5 Fixed Investment % of GDP * Asia 5 : Korea, Thailand, Philippines, Indonesia, Malaysia Source: Credit Suisse (11/2006) Stronger discipline on CAPEX spending producing a healthier current account balance

6. The global importance of Asia % Share of US Euroland Asia* World GDP 22 16 31 Official Reserves 1 8 50 Stockmarket Capitalisation 40 18 10 * 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?

7. High Correlation Low Correlation 15% 18% Export Share: Asia Pac ex-Japan, India & Australia 16% 100% 12.9% 13.3% 13.6% 14% 14.1% 14.3% 14.7% 14.9% 15.0% 15.8% 10% 90% 12% 80% 15.2% 14.6% 16.2% 14.4% 15.1% 14.9% 15.6% 16.5% 16.0% 10% 70% 5% 13.3% 12.4% 13.7% 12.8% 11.9% 11.3% 13.9% 10.5% 8% 11.8% 60% 6% 50% 0% 4% 35.2% 40% 36.5% 38.5% 34.7% 38.6% 36.2% 39.3% 40.1% 39.9% 2% 30% -5% 0% 20% -2% 22.4% US AXJ 22.1% 21.6% 20.7% 20.4% 10% 20.0% 18.9% 18.3% 17.8% -10% -4% 0% 1980 1983 1986 1989 1992 1995 1998 2001 2004 1997 1998 1999 2000 2001 2002 2003 2004 2005 US Asia Pac ex Japan Japan EU Others 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 Source: Morgan Stanley (11/2006) Not completely, but increasingly so

8. 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

9. 1992 base 100 4,000 330 36.0% Housing price 3,500 21.5% 280 3,000 19.3% 2,500 230 71.5% 2,000 180 1,500 56.4% 16.7% 1,000 7.6% 6.0% 130 12.3% 24.0% 18.8% 500 30.0% - 80 1992 1994 1996 1998 2000 2002 2004 9M06 YTD Nov 06 94 95 97 05 96 98 99 00 01 02 03 04 China: Spending on big-ticket items, but …… Sedan Sales in China Property Prices in line with Income Source: Citibank (12/2006) Source: BNP Paribas Peregrine (12/2006) • Rising property price • Strong growth in Sedan sales

10. (%) 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 ……… China’s savings ratio continued to rise ! Savings/GDP Source: CEIC, CLSA (8/2006) China’s income growth appears to grow at a faster rate than consumption growth

11. Other countries 13.1% Japan 14.4% Other countries 22.3% Turkey 1.9% Italy 2.4% Algeria 1.9% France 2.8% China 13.9% Australia 3.5% Venezuela 2.2% United Kingdom 4.0% Canada 2.3% Spain 6.9% Kuwait 2.8% Germany 10.0% Singapore 2.9% United States 65.4% Netherlands 3.5% Norway 4.3% Saudi Arabia 7.9% Russia 7.2% Switzerland 4.4% China has become a major lender (and investor),while the US remains the world’s largest borrower Major capital exporters and importers (% of total) Source: UBS (11/2006) Negative implications for the US dollar and positive implications for Asian currencies … and gold?

12. Barings’ Global forecasts for 2007 • 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

13. 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

14. Country PE PBV ROE EPS Growth 2006 2007 2006 2007 2006 2007 2006 2007 China 16.9 15.1 2.8 2.4 18.4% 17.3% 16.0% 12.0% India 20.6 17.7 4.8 3.8 27.4% 25.4% 21.0% 16.2% Indonesia 16.4 13.0 3.2 2.9 21.5% 23.1% 23.0% 24.6% Malaysia 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% -8.4% 16.8% Taiwan 15.5 12.8 2.1 1.9 14.4% 15.9% 14.4% 20.5% Thailand 8.6 8.4 1.6 1.5 20.7% 18.6% 1.2% 2.5% EM Asia 15.0 12.9 2.2 2.0 15.0% 16.1% 10.1% 17.7% Asian Market Valuation: At fair value * Based on H-Share Index Source: Goldman Sachs (12/2006) Korea and Thailand are relatively cheap, while India and China are relatively expensive

15. 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, re-rating 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 ?

16. China Korea Taiwan Japan 2,500 2,000 1,500 Mth 1 M13 M25 M37 M49 M61 M73 M85 M97 M109 M121 1,000 500 0 -500 Chinese equities’ rally: Heading towards a ‘bubble’ ? % change since Jan 02 for China; Jan 82 for elsewhere Source: Macquarie Bank (11/2006) As with Japan, Korea and Taiwan in the 80s …. will a Chinese market ‘bubble’ materialise?

17. 6 80 70 5 60 4 50 China 40 China 3 30 Japan Japan 2 20 Taiwan 10 1 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 Chinese equities’ valuation: Still reasonably low PE ratios since Jan 02 for China; Jan 82 for elsewhere PB ratios since Jan 02 for China, Jan 82 for Japan Source: Macquarie Bank (11/2006) Compared to Japan, Korea and Taiwan in the 80s, Chinese equities are nowhere near ‘bubble’ valuations yet

18. 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 Global risk appetite : neutral Source: Crdit Suisse (1/2007) Still in neutral zone, as economies and markets appear to be at equilibrium levels

19. 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

20. Asian Markets’ Outlook in 2007 • 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

21. Asia – Major Investment Themes • 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 Reflationand Re-construction

22. 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. . Last updated: 29th January 2007 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.

23. 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 Disclosure for Board meeting only Ensure Complied Date is added at foot of Disclosure