The currencies of Brazil, Russia, India and China are poised to gain even as

RELATED ARTICLES China invests $40 billion in Iran oil, gas: minister China overtakes Japan as No.2 economy: FX chief Industry looks for clarity in new telecom guidelines Industry looks for clarity in new telecom guidelines India offers huge opportunity for Latin America trade

a model of long-term value suggests they’re too strong,according to the Goldman Sachs Group.

While Goldman’s model shows the Brazilian real, Indian rupee, Russian ruble and Chinese yuan are overvalued by about 46%, 16%, 3% and 0.2%, respectively, faster economic growth fuelled by domestic demand may push them stronger, London-based Thomas Stolper wrote in an e-mailed note.

Goldman Sachs is advising clients to buy Asian currencies including the rupee against Japan’s yen and purchase Russian stocks to benefit from rouble strength. In a separate report, Stolper recommended investors exit a bet to buy the real versus the dollar after the Brazilian currency’s 4.6% gain since February 1 left it near his target level of 1.75.

“All BRIC currencies are currently overvalued,” in Goldman Sachs’s long-term valuation model, Stolper wrote. “And yet we expect them to get even stronger,” over the long term, he wrote.

Goldman Sachs is bullish on emerging-market currencies after a rally during the past year pushed the real up 29% against the dollar and spurred an 18% gain in the rouble. The International Monetary Fund forecasts developing-nation economies as a group will expand 6% this year, leading the global recovery, compared with 2.1% for advanced economies.

“Cyclical demand differentials can explain sustainable deviations from fair value,” wrote Stolper. “Stronger relative domestic demand and narrow output gaps tend to drive overvaluation. We would wait for slowing demand before turning bearish on overvalued currencies.”

The currencies of the four countries — known as the BRICs — will return to their long-term value only when their growth slows, their needs for foreign capital swell or the US economy picks up, according to Stolper.

“At the current juncture, none of these three dynamics seem to apply to the BRIC countries,” he wrote.

Goldman Sachs’s valuation model includes only long-term variables such as productivity, price differences between imports and exports, and purchasing power. It ignores factors tied to business cycles, such as interest rates and current account positions.