Asian currencies undervalued, but still set to weaken

Most currencies in Asia look undervalued. However, it would be wrong to conclude that Asia’s currencies are set for rapid appreciation. In 2013, we think an escalation in the euro-zone crisis will dull investors’ appetite for risk, which will put downward pressure on Asian currencies. Further ahead, we think that Asia’s currencies are likely to strengthen but that the pace of appreciation is unlikely to be rapid. As such, Asia’s currencies are likely to remain undervalued for some time to come.