Asian currencies are 25 per cent undervalued against the euro and investors should look for opportunities to bet on the region's foreign exchange rates to rise, said Goldman Sachs Group.
Room to grow: Asian currencies are now undervalued against the euro All 10 Asian currencies outside of Japan have fallen against the euro since the start of the global credit crisis in July as investors sought Europe's safer securities.
Asian currencies should now rise as the region exports more to Europe, domestic consumers spend more and central banks allow stronger currencies to curb inflation, said the biggest securities firm.
'Asian currencies are undervalued versus the euro by about 25 per cent,' wrote Goldman Sachs analysts - London-based Themos Fiotakis and New York-based Jens Nordvig - in a research note issued on Wednesday.
'It's hard to explain why the euro should be outperforming Asia during this dollar decline. If anything, it has led to a more pronounced fundamental imbalance between Asia and Europe.'
Eight of the 10 most active Asian currencies have risen against the US dollar since July as investors shunned American assets as the sub-prime mortgage crisis unravelled. The Philippine peso, Singapore dollar and Chinese yuan have risen more than 10 per cent in the last year against the US currency.
'Asia is no longer hugely undervalued versus the US dollar but is very undervalued against the euro,' said the Goldman Sachs analysts. They forecast the current undervaluation to be more than double the 12 per cent estimate Goldman made in mid-2007.
French President Nicolas Sarkozy said on March 27 that the euro is too high compared to the US dollar, yuan and the yen given Europe's economic growth.
'Timing of entering this theme is tricky,' the note said. 'We will be monitoring the price action and fundamentals closely for opportunities in this space.' - Bloomberg
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