Asia’s mighty market bounceback

A vendor counts Indonesian rupiah banknotes near chili peppers sitting at a stall at the Pasar Induk Kramat Jati market in Jakarta, Indonesia.
Dimas Ardian | Bloomberg | Getty Images

Asia's markets are bouncing back from a selloff that sent some regional currencies to their lowest level since the Asian Financial Crisis in the late 1990s.

Concerns that the U.S. Federal Reserve would raise interest rates for the first time in nine years spurred a massive outflow of funds from emerging markets, including Asia's. But the Fed meeting on September 16-17 surprised markets by leaving rates unchanged and many analysts moved their forecasts for the next hike back into next year.

That's helped to push hard-hit currencies -- such as Indonesia's rupiah and Malaysia's ringgit, which fell to their weakest levels since around 1998, during the Asian Financial Crisis -- up to their highest levels in almost three months.

Read More Does Malaysia's ringgit face 1997 all over again?

Against the greenback, the Malaysia's ringgit has risen around 7.4 percent, Indonesia's rupiah has tacked on around 8.7 percent since the beginning of this month and South Korea's won has added 2.8 percent since the beginning of October.

That does, however, follow an around 18 percent drop in the rupiah and an around 28 percent decline in the ringgit over the January-to-September period. Malaysia and Indonesia are oil exporters so their two currencies have been pressured by the long downturn in oil prices.

Gains got another fillip after the release Thursday of the minutes of last month's .

"The minutes were distinctly dovish, with much reference to inflation remaining below trend, and turmoil in China and the emerging markets," Mark Matthews, head of research for Asia at private bank Julius Baer. "It is ironic therefore, that China and emerging market currency, bond and stock markets are all now rallying. Since most banks are still saying the emerging market rally will run out of steam, it probably has more to go."

Read More Is Indonesia's consumer stronger than its currency?

While he expects some traders to take profit next week on the gains next week, Matthews also doesn't think short-covering is done.

A short position is a bet that profits from a decline in the price of an asset. If the price of the underlying asset stops falling or begins to rise, some investors might be spurred to exit the trade, further boosting the price of the asset in the market.

To be sure, some think the bounce is just a blip in the trend.

"The prospect of a delay in (Federal Reserve) tightening has brought relief, but we do not see this as the start of a turnaround for Asian currencies," Khoon Goh, senior foreign-exchange strategist at ANZ, said in a note Friday. "We still see challenging times ahead for Asian currencies as slowing growth, deleveraging and prospects for further policy easing ultimately see depreciation pressure return."

Goh recommends taking long positions in the U.S. dollar against both South Korea's won and , viewing them as the region's most vulnerable currencies, especially as China's economy slows.