CNBS-The Emerging Market Currencies Most at Risk for Disaster-NOT THE VND!

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Published: Monday, 31 Oct 2011 | 12:34 PM ET

Phew! We made it through the latest European Union summit alive — and now it's time to look at where other disasters may be lurking.

Wondering how some smaller currencies would survive a market calamity? Here's one strategist's analysis.

Luckily, Dennis Tan, a currency strategist at Deutsche Bank, has sifted through balance-of-payment data for a slew of Asian countries, in an attempt to figure out which emerging-market currencies are best prepared to handle a new financial crisis.

"Continued deleveraging at global financial institutions could potentially cause a reduction in credit and capital flow into Asia in the coming year, though the recent bank recapitalization plans would possibly reduce the tail risk of another Lehman-style banking crisis," Tan wrote in a note to clients.

He found that the Sri Lankan rupee
cnbc_comboQuoteMove('popup_LKR=X_ID1EKIAC15839609');
[LKR=X 110.14 0.14 (+0.13%) ]

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, the Indian rupee
cnbc_comboQuoteMove('popup_INR=X_ID1EPNAC15839609');
[INR=X 48.99 -0.15 (-0.31%) ]

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and the South Korean won
cnbc_comboQuoteMove('popup_KRW=X_ID1EVCAE15839609');
[KRW=X 1110.60 -16.80 (-1.49%) ]

cnbc_quoteComponent_init_getData("KRW=X","WSODQ_COMPONENT_KRW%3dX_ID1EVCAE15839609","WSODQ","true","ID1EVCAE15839609","off","false","inLineQuote");

are currently the most vulnerable, because their FX reserves would fall more than 50 percent under a scenario of severe capital outflows — and India's vulnerability has increased the most since 2008.

On the flip side, "Vietnam
cnbc_comboQuoteMove('popup_VND=X_ID1E3HAE15839609');
[VND=X 21005.00 5.00 (+0.02%) ]

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, Korea, and to some extent Taiwan
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[TWD=X 30.02 -0.13 (-0.43%) ]

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have become less vulnerable since 2008," Tan wrote.

Should you trade on this situation now? Only if you think a major disaster is on the way. But it's worth keeping in mind. Be careful out there.