Aberdeen All Asia Investment Trust PLC

Manager's Monthly Report

January 2012

Market Review

Asian equities posted modest gains in December but ended the year with double-digit losses. Eurozone debt worries and the possibility of further sovereign credit rating downgrades depressed sentiment but losses were mitigated by an injection of liquidity into Europe’s banking system and better-than-expected US economic data.

Regional economies showed further signs of slowing, with Indian industrial output contracting for the first time in more than two years. Chinese factory production and exports decelerated, while forward-looking manufacturing indicators pointed to slowdowns in Taiwan and Korea.

Moderating inflationary pressures allowed central banks to hold or ease policy rates. Australia and Thailand cut benchmark rates, while mortgage rates were loosened for first-time homebuyers in Beijing and Shanghai.

In politics, North Korean dictator Kim Jong-Il’s death caused uncertainty in regional markets. India had to backpedal after its attempt to open the retail sector faced a backlash, though it did ratify an earlier decision to open up its market to foreign single-brand retailers.

Portfolio Review

In portfolio activity, we introduced Singapore-headquartered conglomerate Keppel Corporation, which has a growing pipeline of business in its key offshore and marine division. We also topped up existing positions in AIA, HSBC and Oversea-Chinese Banking Corporation. Conversely, we sold Mitsubishi Estate because its expansion efforts have disappointed over the years, despite its clutch of decent core assets in the Marunouchi district.

In portfolio-related news, Samsung Electronics grabbed headlines with a broad management reshuffle. It promoted a division head to a post of vice chairman, signifying a shift towards a two-headed strategy that paved the way for a clearer separation of its component and finished goods businesses. The market viewed the move as a means of allaying concerns over the transfer of trade secrets from its component business to the finished goods operations.

Outlook

Asian stock markets will continue to face more of the same external headwinds in the year ahead. Global growth is likely to slow in 2012. Europe appears headed for a recession under the weight of austerity measures, while the US is still deleveraging, despite the recent improvement in short-term economic data. Asia is unlikely to escape these external problems unscathed. Yet, Asia’s long-term prospects remain undiminished. This is because inflationary pressures appear to be ebbing, allowing central banks greater leeway in supporting growth. At the same time, governments in the region are in much better fiscal shape than those in developed countries, affording them the policy tools necessary to stimulate their flagging economies should the need arise.