ABERDEEN ALL ASIA INVESTMENT TRUST PLC

HALF-YEARLY FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

Chairman's Statement

Performance

Your Company has performed well amid what has been one of the most volatile periods since the height of the global financial crisis. Asset markets fell as Europe's sovereign debt crisis deepened and global growth prospects deteriorated. Asian equities were affected despite the region's relative strength. The quickening pace of globalisation has meant that Asia could not decouple itself from the rest of the world.

Against this backdrop the Company's net asset value fell by 10.3% in Sterling terms during the six months to 30 September 2011, which was better than the benchmark, the MSCI All Countries Asia Pacific (including Japan) Index, which fell 12.7% on the same total return basis. The share price declined 13.4% to end the period at 260.5p as the discount widened. Although the markets were volatile, the Manager raised the level of borrowing near the end of the period, as valuations became more attractive.

On 29 July 2011, a final dividend of 3.25p per Ordinary share was paid in respect of the year ended 31 March 2011.

A detailed performance analysis is covered in the Manager's Review.

Outlook

Financial markets worldwide are expected to face a challenging time in the coming months. The Eurozone crisis has tested market confidence, and the threat of recession in Europe lingers. The debt crisis has spurred austerity that will continue for some time; further fiscal retrenchment could delay recovery. In the US, growth prospects are increasingly bleak. Private consumption could remain depressed given soft employment and consumer pessimism.

Asia will not be immune to swings in the global markets should conditions in the developed world deteriorate further. Recent falls in developing stockmarkets and currencies show the world is still interconnected. China is already seeing growth slow because of domestic credit tightening and moves to cool the property sector. Elsewhere in the region, softer Western demand is weighing on export-oriented economies such as Korea and Singapore. In Japan, the yen's strength is compounding concerns over persistent deflation and anaemic growth.

That said, your Board believes that Asia still offers good investment potential over the long term. Better fiscal management by governments has produced large foreign exchange reserves which may be deployed against external shocks.  Growth continues to outpace the advanced economies, although momentum has eased. Companies are also in good shape in terms of balance sheet strength. Against this background, your Manager's disciplined style of investing in good, financially sound companies should stand the Company in good stead.

Principal Risks and Uncertainties

The principal risks facing the Company relate to its investment activities, and are, therefore, market-related and regulatory. Market risk comprises market price risk, security price risk, foreign currency risk, interest rate risk, liquidity risk and credit risk. Regulatory risk includes the potential loss of investment trust status or a breach of applicable legal and regulatory requirements, which could have adverse financial consequences and cause reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal controls reports from the Manager.

Aside from the market risks associated with investment, the key risks relate to the investment strategy of a focused portfolio of Asian stocks. Strategy, asset allocation and stock selection, while responsible for the good performance of the portfolio, might also lead to underperformance of the benchmark index. These risks are managed through a defined investment policy, specific guidelines and restrictions and by the process of oversight at each Board meeting. The Board regularly reviews major strategic risks and sets out delegated controls designed to manage those risks.

The Company currently utilises gearing in the form of bank borrowings (see Note 7 to the Financial Statements). Gearing magnifies the effect of market movements on the net asset value of the Company.

Further details in respect of the risks associated with investment in the Company are detailed in the Directors' Report and in note 18 to the financial statements in the Annual Report and Accounts for the year ended 31 March 2011 (at pages 19 to 20 and 43 to 45 respectively), a copy of which is available on the Company's website.

Related Party Transactions

Aberdeen Asset Management Asia Ltd acts as Manager to the Company and, through its parent company, Aberdeen Asset Management PLC, provides company secretarial, accounting and administrative services. Details of the service and fee arrangements can be found in the Annual Report and Accounts for the year ended 31 March 2011.

Directors' Responsibility Statement

The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with applicable law and regulations.  The Directors confirm that to the best of their knowledge -

-       the condensed set of Financial Statements have been prepared in accordance with the UK Accounting Standards Board's statement "Half-Yearly Financial Reports"; and

-       the Interim Management Report includes a fair review of the information required by rules 4.2.7R of the UK Listing Authority Disclosure and Transparency Rules (being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the financial year) and 4.2.8R (being related party transactions that have taken place during the first six months of the financial year and that have materially affected the financial position of the Company during that period; and any changes in the related party transactions described in the last Annual Report that could so do).

The Half-Yearly Financial Report for the six months ended 30 September 2011 comprises an Interim Management Report in the form of the Chairman's Statement, the Directors' Responsibility Statement and a condensed set of Financial Statements, and has not been audited or reviewed by the auditors pursuant to the APB guidance on Review of Interim Financial Information.

Neil Gaskell

Chairman

21 November 2011

Manager's Report

Overview

Over the half year ended 30 September 2011, the portfolio's net asset value per share fell by 10.3% in Sterling terms compared with a decline in the benchmark, the MSCI AC Asia Pacific (including Japan) Index, of 12.7%. Initially, Asian equities were supported by resilient corporate earnings and Japan's faster-than-expected recovery from its catastrophes. Greece's debt problems weighed on markets but the passing of new austerity measures which freed up more EU funding, led to a sharp rally in June. This was short-lived, however. Sentiment worsened drastically in August as America suffered its first ever sovereign debt rating downgrade and China's tightening measures deepened concerns of a hard landing for its economy. This was despite the Federal Reserve's renewed commitment to hold US interest rates near zero. Europe's debt crisis also escalated with Greece at risk of a default, amid stalling growth in the West. Hence, markets were volatile over the rest of the period.

While underlying fundamentals remained healthy in Asia, there were signs of decelerating growth. Hong Kong and Singapore suffered quarter-on-quarter GDP contractions as weak external demand hurt exports. India trimmed its fiscal-year growth forecast, although consumption and investment trends stayed firm. Its central bank hiked interest rates, as did China, Taiwan and Thailand, given persistent inflationary pressures. Beijing also tightened credit and intensified efforts to cool the housing sector. Malaysia and the Philippines imposed higher reserve requirements on lenders, while Indonesia and Singapore allowed their currencies to appreciate. Towards the period end, however, slowing economic activity saw consumer prices retreat across the region except in China and India.

Japan's economy sank into recession but recent data, including a rebound in exports, indicated that it was recovering post-earthquake. Meanwhile, the yen rose sharply against sterling and the US dollar. The central bank intervened to stem its appreciation, while the government took steps to help companies cope with the yen's strength. On the political front, Yoshihiko Noda became the sixth leader in five years replacing Naoto Kan who resigned as prime minister. The change further underscored a longstanding weakness: the political establishment's inability to produce an effective leader capable of gaining the public's trust.   

Elsewhere, Thai voters put their faith in Yingluck Shinawatra (the sister of ousted leader Thaksin), who became the country's first female prime minister. Her Pheu Thai party won the July elections comfortably on the back of populist promises including a higher minimum wage and a price guarantee scheme for rice producers.

Portfolio

The portfolio outperformed the benchmark, driven by good stock selection. Asset allocation was mildly positive, whereas the currency effect was negative because we were underweight to Japan, which saw the yen strengthen significantly during the period  amid the flight to safety.

Outperformance was largely the result of the quality of the stocks we hold in North Asia. In Japan, our stock selection bolstered relative return. This more than offset the impact on performance from our underweight position, as the stockmarket fell by much less than the regional benchmark. Five of the top 10 contributors to the portfolio were Japanese holdings. Post-earthquake, we have held on to our investments because we are confident of their management. We have also found that their basic underlying fundamentals remain solid. Our preference for financially robust companies with conservative management proved positive for performance during the turbulent period as investors focused on dividend yield, cash flow and balance sheets. In the more defensive consumer-related sectors, personal goods producer Unicharm and convenience store operator Seven & I were boosted by resilient demand. Both Canon and Shin-Etsu Chemical resumed production much earlier than expected after suffering disruptions from the March earthquake. Another solid performer was Takeda Pharmaceutical, which held up well over the six months.

The portfolio's underweight exposure to China also contributed positively. The Chinese stock market was the worst regional performer, led by the financial sector, as it lost close to a quarter of its value over the period. Sentiment was hurt by concerns over the increasingly tight credit environment and slowing economic growth. In China, we have found the majority of companies weak in corporate governance and protection of minority shareholder interests. We prefer to gain exposure to China's growth through Hong Kong-listed firms that do business on the mainland. These companies tend to be of higher quality, are well managed and have good track records.

Our holdings on the mainland and in Hong Kong aided performance. China Mobile's share price bucked the downtrend, given its healthy balance sheet and ability to generate steady cash flows, while PetroChina fared better than the broader market as it benefited from an increase in oil prices. Hong Kong-based conglomerate Jardine Strategic was bolstered by its underlying businesses; in particular, its Indonesian subsidiary Astra posted robust results driven by growth in the auto business and related financing arm. 

The stocks that we hold in India, Korea, Taiwan and Singapore were also key contributors. Indian motorcycle maker and distributor Hero MotoCorp's share price rose sharply after the Munjal family's Hero Investments completed the acquisition of Honda Motor's 26% stake. This removed the uncertainty over the company's future following the termination of its partnership with Honda. Its stock was further supported by healthy domestic demand. In Korea, discount retailer E-Mart was boosted by improving profitability and the defensive nature of its business. Elsewhere, Singapore Telecom and Taiwan Mobile were resilient as investors were drawn to their solid cash flows and attractive dividend yields.

In contrast, our Australian holdings lagged. Mining group Rio Tinto's share price fell sharply on the back of a correction in commodity prices. General insurer QBE was hurt by concerns over record catastrophe claims and low investment yields. We remain comfortable with the two companies, which have global diversified businesses and competent management.

During the period, we took advantage of share price weakness to add to our financial holdings, QBE and Standard Chartered, while we continued to build our position in HSBC. Both HSBC and Stanchart are well positioned in Asia and emerging markets, while QBE is one of Australia's leading general insurance and reinsurance groups. Against this, we sold Hindustan Unilever, which enjoys a leading position in the fast moving consumer goods segment in India. Although it continues to do well, growing sales and earnings, the stock's valuation appeared relatively expensive after it rallied. We also took some profits from Singapore Telecom, Fanuc and Public Bank during the period. Both Singapore Telecom and Fanuc were strong performers during the period while Public Bank's strong profit growth and asset quality have already been reflected in its current valuations.

Outlook

A more difficult year lies ahead. Fiscal and economic woes in the West are likely to persist for some time. Risk appetite and investor confidence remain fragile. This will cloud prospects in Asia, although the region's fundamentals are intact and policymakers have significantly more scope to loosen monetary policy. On the positive side, we expect commodity prices to ease on the back of slowing global growth. This should help alleviate inflationary pressures, which have been a major cost concern for companies. But we anticipate that earnings and GDP growth will decelerate. That said, we are sanguine about the longer-term outlook for our holdings. Their balance sheet strength will give them the flexibility to invest and grow their businesses even in the more challenging times ahead. Valuations of the companies in the region are looking increasingly attractive following the recent market sell-off. This provides opportunities for us to add to quality names at reasonable prices.

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RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

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NOTES TO THE ACCOUNTS

For Aberdeen All Asia Investment Trust plc

Aberdeen Asset Management PLC, Secretary

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