Currencies across Asia are set for a beating, buffeted by a combination of the G3 central banks, a stronger U.S. dollar and newly volatile Chinese yuan, HSBC said.
"It will be slim pickings in terms of which Asian currencies to like next year. Even the yuan will be predisposed to bouts of higher volatility, which could further upset the region's currencies," HSBC said in a note Thursday. "While we had expected most Asian currencies to trade on the back foot against the U.S. dollar, some are now even starting to underperform the euro."
Many of Asia's currencies have had a tough week since the Bank of Japan (BOJ) announced a fresh batch of stimulus, with the Singapore dollar shedding 1.5 percent against the U.S. dollar, the Thai baht losing 1.1 percent, the dropping 2.2 percent and Indonesia's rupiah slipping 0.7 percent.
Not just the Fed
Currencies with sound external balances, such as the yuan, , Taiwan dollar and Singapore dollar, were expected to hold up better against the Federal Reserve's tapering of its asset purchases this year, HSBC said.
But it added, "It has become steadily clearer that Asian currencies are held hostage to more than just the Fed. The ECB (European Central Bank) has become increasingly important and suddenly so too has the Bank of Japan."
ECB President Mario Draghi this week indicated the central bank may take further aggressive stimulus measures, with many analysts expecting a quantitative easing program, including bond-buying, is in the works. The ECB is already buying asset-backed securities.
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Draghi's comments followed the Bank of Japan's surprise move last Friday to expand an already large stimulus program by increasing asset purchases. It plans to increase purchases of Japanese government bonds (JGBs) to 80 trillion yen annually from the current 50 trillion yen as well as tripling purchases of exchange-traded funds (ETFs) to 3 trillion yen and tripling Japanese real-estate investment trust (REIT) purchases to 90 billion yen.
"This muddies the picture as to which Asian currencies should outperform," HSBC said. "It only fuels a stronger U.S. dollar and even those Asian currencies with sound external balances (the Korean won, the Singapore dollar and the Taiwan dollar) cannot ride out the storm. It is all proving to be a nasty combination for many Asian currencies."
Furthermore, with inflation falling and growth slowing across the region, many policy makers will be less inclined to step in to curb currency weakness, HSBC said.
Will the yuan stand out?
The yuan will be the "elephant in the room," HSBC said.
"So far the has been resilient and it continues to be our preferred currency to outperform in the region, on account of prudent policy, strong underlying inflows, high yields and an ongoing reform and internationalization story," it said. But it noted that authorities are set on creating more "two-way" volatility.
"If that starts to happen in an environment when other Asian currencies are already under pressure, as they are now, then it will only upset the apple cart further," it said.
Others also expect Asia's currencies face significant headwinds.
"We remain tactically bullish on global emerging markets," Societe Generale said in a note Thursday. But it added, "In the absence of global growth signals, there is little support for emerging market foreign-exchange exposure from a fundamental perspective, however, especially when one factors in the easing bias of many EM central banks."
But Societe Generale expects Asian currencies will be more resilient to U.S. dollar strength compared with other regions.
"A persistently weaker Japanese yen could act as drag on regional currency performance, but aside from the Korean won, the Malaysian ringgit, and the Singapore dollar (the worst performers since the surprise BOJ easing) the direct impact should be minimal," it said.
In a separate note, Societe Generale noted it doesn't expect significant inflows into emerging Asia from asset-allocation changes by Japan's Government Pension Investment Fund (GPIF). It estimates as much as $14 billion could head to the region based on the fund's equity and bond index benchmarks, but that's dwarfed by the $318 billion that flowed into emerging Asia excluding Hong Kong and Singapore over the past two years.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1