Aug. 27 (Bloomberg) -- Slides in Asian currencies will gather pace as demand cools in the world's biggest economies and investors shift funds out of the region into dollars, according to Morgan Stanley.

All of Asia's 10 most-active currencies excluding the yen have weakened against the U.S. currency in the past month amid concern a deepening global economic slump will hurt exports from the region. Hong Kong's economy shrank in the second quarter for the first time in five years, while Singapore's contracted at the fastest pace of the period, official figures show. Taiwan's export orders grew last month at the slowest pace in that time.

``Asian assets, including currencies, will take a major hit in the period ahead as the world downshifts,'' Stephen Jen, the London-based head of currency research at Morgan Stanley, wrote in a note yesterday. ``The most vulnerable markets are in Asia ex-Japan, partly because of how Asian economies behave when OECD countries slow, and partly because investor sentiment is still too bullish and sanguine.''

The Korean won and the Indian rupee may post the biggest declines, he said, noting a ``mental target'' of 47 to 48 for the Indian currency, a slide of about 8 percent from current levels against the dollar. He didn't give a timeframe.

The won has tumbled 7 percent to 1,084.10 per dollar in the past month, the worst performance in the region, while the rupee is 3.4 percent lower at 43.8325, according to data compiled by Bloomberg.

There are more investors who are upbeat on Asia than the reverse, even as recent data shows signs of slowing growth in the region, Jen wrote.

`Bad Sign'

``This is a bad sign as it tells me dollar-Asians have a long way to go particularly from equity investors who have, over the years, accumulated pretty sizable exposures to the Asia-ex- Japan equity markets,'' the note read.

The region's currencies are also likely to weaken as Asian central banks ease monetary policies to favor growth as the global economic slowdown helps check inflation, Jen said. Malaysia's central bank this week kept its benchmark interest rate at 3.5 percent for a 19th straight meeting, after inflation accelerated to a 26-year high of 8.5 percent in July.

To contact the report on this story: Patricia Lui in Singapore at plui4@bloomberg.net.

Last Updated: August 27, 2008 04:49 EDT