REGIONAL COMMENTARY OCTOBER 2010

Asia Pacifi c region

Overview Asian stockmarkets rebounded in September as investors focused on signs of continued growth in regional economies rather than the largely disappointing data from the US and Europe. Notably, the Indian market rose to its highest in two years on foreign infl ows, while Hong Kong advanced to an eight-month peak, helped by relief that fresh property controls in the mainland were less severe than expected. The Japanese market was lifted by the export sector’s gains after the central bank moved to weaken the yen but lagged the region. Economic growth in the region was positive, despite more signs of moderation. Chinese data pointed to still robust expansion. The mainland’s demand for resources benefi ted Australia, with second-quarter GDP expanding at its fastest pace in three years. The Indian economy was driven by improved farm output, although manufacturing activity fl agged, as was the case in Singapore. By contrast, Korea posted a gain in August industrial output, while electronics shipments boosted export data in Taiwan and Thailand. For Japan, second-quarter growth was revised upward on higher capital spending, even though the yen’s strength continued to take a toll on exporters. Infl ation advanced in China because of higher food prices, whereas in Singapore, the rising cost of housing and transportation were the key reasons. Conversely, price pressures eased in India and Thailand. Even so, India’s central bank hiked interest rates by more than expected, while Taiwan also raised rates. Elsewhere, Indonesia lifted lenders’ reserve requirements from 5% to 8%. In contrast, Australia, Japan, Korea, Malaysia and Sri Lanka held rates steady. In other policy news, Japan unveiled details of its ¥920 billion stimulus package; India lifted foreign limits on bonds to help fund infrastructure; will ease mortgage lending rules and extend tax breaks to boost fl agging home sales; and Malaysia is targeting M$670 billion- worth of private sector-led projects. On the political front, Japanese prime minister Naoto Kan reshuffl ed his cabinet shortly after overcoming rival Ichiro Ozawa’s challenge for party leadership. A row erupted between Tokyo and Beijing after a boat collision near disputed islands in the East China Sea. Australia’s election impasse ended after independent parliamentarians backed the incumbent Labor Party, helping it secure a second term. However, policymaking may be hamstrung because of the slim working majority. Asian stockmarkets are likely to stay volatile in the short term as global imbalances persist. While the fate of regional equities remains tied to Western counterparts, the longer-term outlook for the region appears bright vis-à-vis the developed world, given robust corporate fundamentals. Meanwhile, valuations are still reasonable and market corrections should present long-term investors with buying opportunities.

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Corporate news Australia: Rio Tinto will invest US$1.6 billion to develop an iron ore mine in Western Australia that will start production in 2013 and invest US$230 million to expand its Dampier Port facility. Separately, BHP Billiton received approval to develop the US$1.5 billion Macedon gas fi eld in Western Australia. Meanwhile, the competition authority delayed ruling on Rio and BHP’s proposed joint venture pending further discussions with overseas regulators. China/Hong Kong: Standard Chartered is setting up its 18th mainland branch in Wuhan, in addition to the fi ve others that will start operations this year. Sun Hung Kai Properties’ full-year earnings were driven by the resilient Hong Kong market and increasing contributions from new investment properties. It acquired another Hong Kong plot for HK$459 million, underlining its optimism towards the market. China Mobile may launch an internet search engine next year, as it looks to data services for growth opportunities. Its subscriber base grew in August, driven by rapid 3G take-up. Swire Pacifi c will sell its stake in two can-making businesses to its partner for US$150 million. Li & Fung’s shareholders approved plans to buy sister company Integrated Distribution Services, a move that will raise the consumer goods exporter’s regional presence. Japan: Sekisui House’s fi rst-half earnings exceeded expectations as its main business recovered substantially, aided by government initiatives. This allowed the company to upgrade its full-year guidance. Canon will invest ¥15 billion in a Thai plant to meet Asian demand, underscoring the recent trend of overseas investment by Japanese companies, partly supported by the strong yen. Unicharm will issue convertible bonds to refi nance its debt from the acquisition of its pet care subsidiary. Toyota Motor enjoyed better August sales in China, helped by improved branding. The carmaker also offered cash-back incentives and factory-installed navigation systems to minivan buyers to penetrate the domestic mini-vehicle market Korea: received necessary approvals to transform into a fi nancial holding group, bringing it closer to acquiring Kyongnam Bank. Malaysia: Public Bank was among the fi nancial institutions that were awarded four new Takaful (Islamic insurance) licences issued by the central bank. In light of rising illegal cigarette trade, BAT Malaysia lobbied the government to consider a new excise tax structure that will implement gradual annual increments rather than large one-off hikes. The authorities subsequently hiked excise duty by 3 cents per cigarette stick. Singapore: SingTel will offer new high-speed fi bre services on the back of the Next Generation National Broadband Network. United Overseas Bank bought the physical assets of HSBC’s Asian banknotes business for US$15 million. City Developments sold an offi ce block for S$215 million. Taiwan: TSMC expects this year’s profi ts and revenue to surpass the industry average by a signifi cant margin, which suggests that the industry leader is poised to gain further market share. Thailand: Legislators ruled that nearly all the projects at Map Ta Phut industrial park can resume operations, which bodes well for Siam Cement. Elsewhere, PTT Exploration & Production rejected Indonesia’s compensation claims for an oil spill in the Timor Sea.

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Asia Pacifi c region

Focus: An expected deluge

Equity issuance pipeline till the end of 2010

China 33.3

India 12.3

Singapore 9.2

Malaysia 3.7

Indonesia 3.7

Korea 2.7

Philippines 2.0

Hong Kong 1.5

Thailand 0.6

0 5 10 15 20 25 30 35 US$ billion

Sources: Citi Investment Research and Analysis, The Asia Investigator - 20 September 2010, IRF, Thomson Financials, World Federation of Exchanges, CEIC Between now and the year end, the pipeline for equity issues in Asia ex-Japan is expected to reach US$116 billion, led by stockmarkets in China, India and Singapore. These issues include initial public offerings, private placements, rights offers, convertibles, as well as secondary offerings. For 2010 as a whole, the total amount of equity issuance may total US$291 billion, some 30% higher than the previous year.

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Performance of Asia Pacifi c stock markets 30/09/10 1 month (%) Year to date (%) Local Local Index currency US$ £ currency US$ £ MSCI AC Asia Pacifi c 99.41 5.65 8.39 5.71 -2.05 4.86 7.46 Australia ASX All Ordinaries 4636.90 4.46 13.64 10.84 -5.03 2.24 4.77 China Shanghai Se B-Share 262.77 2.28 2.28 -0.25 4.11 4.11 6.69 Hong Kong - Hang Seng 22358.17 8.87 9.09 6.39 2.22 2.10 4.63 India Bse Sensex 30 20069.12 11.67 16.91 14.02 14.91 19.00 21.95 Indonesia Jakarta Composite 3501.30 13.61 15.01 12.17 38.15 45.43 49.03 Japan Topix 829.51 3.09 3.62 1.06 -8.60 1.85 4.37 Korea Kospi Composite 1872.81 7.46 12.99 10.20 11.29 13.66 16.47 FTSE Bursa Malaysia 1463.50 2.88 4.59 2.01 14.98 27.54 30.70 NZSE All Share 734.56 3.14 8.29 5.62 -4.98 -3.95 -1.57 Pakistan KSE100 10013.31 2.04 1.05 -1.44 6.67 4.25 6.83 Philippines PSEi Composite 4100.07 14.97 18.83 15.90 34.31 41.49 44.99 Sri Lanka CSE Colombo All-Share 6997.22 23.67 24.55 21.48 106.68 111.20 116.44 Taiwan TAIEX 8237.78 8.16 10.90 8.17 0.61 3.00 5.55 Thailand Bangkok SET 975.30 6.80 10.13 7.41 32.78 45.86 49.47 MSCI India 799.45 10.96 16.16 13.29 13.06 17.09 19.99 MSCI Singapore 365.03 4.79 7.92 5.26 4.48 11.52 14.29 Source: Factset

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Asia Pacifi c region

During the month we met the following companies: Australia: AMP, Atlas Iron, Australia & New Zealand Banking, Avoca Resources, BHP Billiton, Brambles Industries, Brickworks, Centrebet International, Challenger Diversifi ed Property Group, Charter Jall Group, Charter Hall Retail REIT, Citadel Resource Group, Citigroup, Coca Cola Amatil, Commonwealth Bank of Australia, Computershare, Crane Group, Equinox Minerals, Goodman Fielder, Hastings Diversifi ed Utilities, Kagara, Kingsgate Consolidated, Leighton, Mineral Deposits, Monadelphous, Myer, National Australia Bank, National Hearing Care, Nexus Energy, NRW, Orica, Origin Energy, Panoramic Resources, Perpetual Trustees Australia, Pharmaxis, Platinum, QBE Insurance Group, Regis Resources, Sonic Healthcare, Steven Group, Tatts Group, Telstra, Tower Australia Group, West Australia Newspapers, Westfi eld Group, Westpac Banking, Xerox China/Hong Kong: AIA, Besunyen, Charm Communications, Changfeng Axle, China Fire & Security Group, China Merchants Bank, China Resource Land, China Resources Enterprise, China Sanjiang Fine Chemicals, COFCO Tunhe, Digital China, Geely, Global Education & Technology Group, Hung Hing Printing, Kosmopolito Hotels International, MicroPort, Pacifi c Basin Shipping, Shanghai Pharmaceuticals, Shangri-La Asia, Soufun, Sun Hung Kai Properties, Sunac, Trony Solar, Xinjiang Bayi Iron & Steel, Xinjiang Goldwind Science & Technology, Xinyiang Zhongtai Chemical India: Aventis Pharma, BASF, Bombay Dyeing, GMR Infrastructure, Godrej Industries, Grasim Industries, Hindustan Unilever, ICICI Banking, Indian Oil Indonesia: ACE Hardware, AKR Corporindo, Bank Central Asia, Bank Danamon, Bank Jabar Banten, Bank OCBC NISP, Bank Permata, Excelcomindo Pratama, Gudang Garam, Holcim, Indo Tambangraya Megah, Indofood CBP Sukses Makmur, Indosat, International Nickel Indonesia, Mandom, Mayora Indah, Medco Energi, Multi Bintang, Mustika Ratu, Perusahaan Gas Negara, Petra Foods, Sepatu Bata, Sumber Alfaria Trijaya, Telekomunikasi Indonesia Japan: All Nippon Airways, Astellas Pharma, Bank of Yokohama, Canon, Central Japan Railway, Daibiru, Daito Trust Construction, Dr Ci: Labo, East Japan Railways, Fujitsu, Gold Crest, Hokuto, Intage, Mitsubishi Estate, Parco, Sharp, Shin-Etsu Chemical, Shizuoka Gas, Sho-Bong, Sony, Sumco, Takeda Pharmaceutical, Toshiba, Tri-Stage, USS Korea: Busan Bank, Daegu Bank, Daekyo, Hanmi Pharmaceutical, Korea Life, Korean Reinsurance, Mega Study, Pohang Iron & Steel (POSCO), Electronics, , , Department Store Malaysia: Cocoaland, Digicom, Kian Joo Can Factory, Mamee-Double Decker, Panasonic Manufacturing Mongolia: Mongolian Mining New Zealand: Air New Zealand, Telecom Corporation of New Zealand Philippines: Bank of Philippine Islands, Cebu Air Singapore: BreadTalk Group, Bukit Sembawang, Cerebos Pacifi c, City Developments, Eu Yan Sang, PEC, Singapore Airlines, Singapore Exchange, Singapore Telecom, WBL Sri Lanka: Cargills Ceylon, Ceylon Tobacco, Colombo Dockyards, Heyleys, Hemas, Lanka Orix Taiwan: Gourmet Master Thailand: Asian Property Development, Dynasty Ceramic, Haad Thip, Hana Microelectronics, Home Product Center, Land & Houses, L.P.N Development, Minor International, Robinson Department Store, Sansiri, Supalai, Thai Tap Water Supply

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