Barclays makes tactical bet on emerging Asia FX

NEW YORK (Reuters) - Investors oversold emerging market currencies on "overdone" fears on Europe's debt crisis, and they now risk missing an upturn in fast-growth emerging Asian nations, a top emerging market strategist said on Wednesday.

"The anxieties about the global macro context at this juncture seem to us to be overdone," Michael Gavin, global emerging market strategist at Barclays Capital in New York, told the Reuters Investment Outlook Summit.

"Not that we're saying that investors should not be concerned about these issues but they don't cause the imminent threat to the economic context that investors seem to be focusing on," he said.

Gavin said he favors high-beta currencies, particularly in Asia where interest rates are set to rise.

"We think the drivers of Asian FX, although delayed in their appearance by the European fiscal crisis, are still coming," he said, adding that some were oversold and ripe for a recovery.

"Those drivers are, first, quite a robust cyclical context," he said, citing for example near full employment in South Korea.

The Korean won is "dirt cheap" at current levels, he said. Barclays forecasts a strengthening to 1,025 per U.S. dollar in the next year versus the current level of 1,247.

Other top Asian picks, Gavin said, included the Taiwanese dollar TWD.N and Malaysian ringgit.

Outside of Asia, he said the Mexican peso looks favorable given the country's strong economic ties to the recovering United States economy.

"We are coming to quite a mature phase in the monetary cycle. So the time will come when monetary policy has to be tightened earlier in Asia than in the rest of the world, setting Brazil aside as an outlier," Gavin said.

Economic recoveries elsewhere in the world, however, are not as advanced, and investors should not expect imminent tightening of monetary policy on a broad global scale.

EUROPE'S IMPACT

Europe's current fiscal crisis is likely to be felt in emerging markets but the impact will be uneven at best. One factor is the threat to global growth and the marked downturn in commodity prices over the last five weeks.

An example of how the euro's impact might be felt going forward is in the currency cross rate between the Brazilian real and Mexican peso.

"The eerie stability of that cross suggests to me that investors are trading these currencies against the global factors, implicitly, rather than against one another," Gavin said.

The Brazilian real has traded in a tight range between roughly 6.9 and 7.2 pesos since the end of January, he noted.

"Brazil is kind of ground zero on both commodity prices and currency. It is much more exposed to the euro than the Mexican peso," Gavin said.

"When they take a good hard look, even when they can afford to focus on the relative local fundamentals, Brazil versus Mexico, it seems to me Mexico comes out the relative winner.... At the moment it seems like the move in the euro has not been fully collected," he said.

(Editing by Leslie Adler)