South African, Australian Currencies Undervalued, Goldman Says

By Candice Zachariahs

Oct. 21 (Bloomberg) -- Currencies including the South African rand, the Mexican peso and Australia's dollar are undervalued by more than 20 percent based on inflation, productivity and terms of trade, Goldman Sachs Group Inc. said.

The three have been the worst performers of the 16 most- active currencies against the greenback over the past month, falling 21 percent, 18 percent and 16 percent respectively as equity markets and commodity prices tumbled amid a global credit crisis. MSCI's World Index, a benchmark for global stocks, dropped 21 percent in that time and the Reuters/Jefferies CRB Index, which tracks commodities futures, slumped 24 percent.

The currencies ``offer considerable value from a medium- term perspective,'' Jens Nordvig, a Goldman strategist in New York, wrote in a research note dated yesterday. ``Any evidence that currencies are becoming less closely linked to equity market trends would be an indication that valuation signals are closer to becoming important trading signals again.''

The South African rand gained 0.5 percent to 10.1390 per dollar at 1:57 p.m. in Tokyo from 10.1875 late yesterday in New York. Mexico's peso traded at 12.9875 per dollar from 12.9901. The Australian dollar was 1.3 percent weaker at 69.55 U.S. cents.

The Chilean peso, Norwegian krone and Malaysian ringgit are also undervalued, Nordvig wrote. He compared his valuation estimates for now and one year's time with current prices and those of 12-month forwards contracts.

South Africa's rand is the ``cheapest,'' undervalued by 41 percent at present and 46 percent on a forward-looking basis, he said. Chile's peso is the next most undervalued, followed by the currencies of Norway, Australia, Malaysia and Mexico. All trade at discounts of more than 20 percent to both current and 12- month estimates.

These are not ``direct measures of expected return,'' wrote Nordvig. ``We would not expect full convergence to equilibrium over this time horizon.''

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net