By several measures, Asian currencies are bargains - but be careful.
China may be allowing the yuan to rise, but the currency strategists at Bank of America Merrill Lynch say it has plenty of room to keep strengthening - and other Asian currencies are even more undervalued.
The strategists estimate that both the Philippine peso and the Thai baht are at least 20 percent undervalued, with the South Korean won and the Malaysian ringgit each undervalued by roughly 12 percent.
Serious bargains, right? Won't the yuan bring other Asian currencies along for the ride? Not so fast, the strategists say.
"One lesson to be drawn from 2011 is that even with CNY appreciation, broader Asia FX appreciation is not necessarily guaranteed," they wrote in a note to clients. "This currency block remains very pro-cyclical and vulnerable to negative growth shocks from G10. We are forecasting a difficult start to 2012."
That's why the Bank of America Merrill Lynch strategists recommend being short the South Korean won and the Malaysian ringgit against the dollar. There is an outside risk that China's growth could beat expectations, they say, but barring that, they believe the won could drop 6 percent against the dollar, and the ringgit roughly 3 percent.
Remember what Mom said: just because it's cheap doesn't mean it's a bargain.
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