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(Bloomberg) -- After years of coming second to popular Latin American carry trades, Asian currencies are finding their cheapness has become an asset as traders seek to capitalize on the dollar’s eroding premium status.
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Currencies like South Korea’s won, the Indonesian rupiah, and the Indian rupee rank among the most undervalued in emerging markets relative to their historic average, according to data compiled by Bloomberg. Beyond attractive valuations, fresh economic stimulus in China and signs of progress in US-Asia trade negotiations are adding to the region’s allure.
The potential for Asian currencies to strengthen was on full display earlier this month, when a sharp surge in the Taiwanese dollar spread across the region. That helped the cohort catch up with their developed and emerging-market peers, which had been outperforming following the dollar’s decline after US President Donald Trump’s early-April tariff announcement.
“On a fundamental basis, it’s been cheap for a long time,” said Claudia Calich, head of EM debt at M&G Investment Management, adding that investors including herself had been underinvested in Asia thanks to higher carry opportunities in Latin America. “It’s finally started correcting a little, but even then it’s still relatively cheap.”
Korea’s won, which plummeted last month in response to Trump’s barrage of “reciprocal” tariffs, is a prime candidate for further gains, according to Goldman Sachs Group Inc. and Barclays Plc.
Goldman strategists — who looked at the extent of undervaluation, possible conversion of dollar assets, and the role of the yuan — for their picks, also expect Malaysia’s ringgit and the South African rand to appreciate. Barclays analysts see significant scope for gains in the Singapore and Taiwanese dollars too.
Sentiment toward Asia’s depressed currencies has already improved, as investor sentiment toward concerns about Trump’s policies tarnish the appeal of the dollar and trade-deal hopes improve appetite toward EM assets.
A Bloomberg index of Asian currencies rose the most in almost a week on Monday, as the yuan and the Taiwanese dollar advanced after the US and China reported “substantial progress” in their trade talks. While details were sparse, the progress added to signs that the tariff uncertainty may have peaked, helping the gauge gain more than 3% since its low in April.