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Published on April 25, 2008

New York-based global investment banker and securities firm Goldman Sachs advises that Asian currencies are 25 per cent undervalued against the euro, and investors should be looking for opportunities to bet on the region's foreign-exchange rates to rise.

All 10 Asian currencies outside of Japan have fallen against the euro since the start of the global credit crisis last 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.

"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 yesterday.

"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 dollar since last July as investors shunned US assets with the unravelling sub-prime mortgage crisis. The Philippine peso, Singaporean dollar and yuan have all risen more than 10 per cent in the last year against the US currency.

"Asia is no longer hugely undervalued versus the dollar, but is very undervalued against the euro," wrote Fiotakis and Nordvig.

They estimated the current undervaluation to be more than double the 12-per-cent estimate Goldman Sachs made in the middle of last year.

French President Nicolas Sarkozy said on March 27 that the euro was too high compared with the US dollar, the yuan and the yen, given Europe's economic growth. He has urged China to allow faster gains to alleviate global imbalances.

"The timing for entering this theme is tricky," the Goldman Sachs note said. "We will be monitoring the price action and fundamentals closely, for opportunities in this space."