By Chew Xiang

THE latest Big Mac Index suggests - as it has for most of the past 12 years or so - that most Asian currencies are seriously undervalued, while the Norwegian krone and Swiss franc remain the most overvalued.

That should be good news to the legion of China-bashers who think Beijing unfairly depresses the yuan so that its exporters get a free subsidy. That may or may not be true. But the Big Mac's a flabby argument for that, and here's why.

The BMI says that Hong Kong and China are close to 50 per cent undervalued, as it compares the local currency price of the eponymous burger with its US dollar equivalent at prevailing exchange rates. That means the Chinese yuan ought to be at 3.54, not 6.78, as it has been since a de-facto peg of 6.83 to the dollar was removed last month.

Most Asian currencies are similarly undervalued, according to the index - Malaysia's ringgit is 41 per cent below its fair value; the rupiah should be at 6,102 instead of just above 9,000, a difference of 33 per cent; while the Taiwan dollar and the Thai baht are about 40 per cent off.

The Singapore dollar is comparatively fair valued - it's just 18 per cent behind its Big Mac value of 1.13 (yesterday it closed at 1.3622). The yen, too, is more or less where it should be, so Japan and Singapore have both been largely spared any currency bashing.

The International Monetary Fund said the Sing dollar was undervalued - 'somewhat weaker' than its equilibrium value - but the difference, it calculated, is just one per cent.

Unsurprisingly, Scandinavian countries are the most expensive - Norway is 93 per cent overvalued, Sweden is 76 per cent, while Denmark is relatively cheap, at just 31 per cent over its fair value.

But the good index doesn't take into account two very important things, besides all the disclaimers The Economist already lists. The first is that not all Big Macs are born equally big.

The bona fide American Mac has 540 calories in its two 1.6-ounce-all-beef (at least, all beef part) patties, lettuce, special sauce, cheese and a sesame seed bun.

According to McDonald's, the Chinese version contains just 500 calories. So Americans are getting more for their $3.73 than the Chinese are for their 13.20 yuan, which implies a calorie-weighted exchange rate of 3.82, not 3.54. That means the yuan is just 44 per cent undervalued, not 48 per cent.

In fact, adjusting the index and weighting by calories - Big Macs vary from 600 calories in Mexico to 520 in Singapore to around 490 in Europe - will give a rather different picture. The calorie-weighted index shows the Sing dollar is just 14 per cent undervalued, for instance. The American Big Mac is among the biggest in the world - only Canada, Chile and Mexico are the same size or larger - which means most currencies aren't as undervalued as they may appear at first sight.

A second point the index neglects is that a Big Mac isn't the same thing, qualitatively speaking, across different countries. It occupies different places on local food chains.

In euro zone countries, it is at an average price of 3.38 euros, one of the cheapest ways to get 500 calories of cooked food. It is also - because of the wide and cheap variety of sandwiches, salads, rotisseries and bakeries there - one of the worst ways to fill a tummy.

On the other hand, a branded burger is almost everywhere in Asia - except possibly in Japan and the wealthier districts of Hong Kong and Singapore - a middle-class, aspirational food. A Big Mac is a status symbol and if that's not reflected in the menu price, then Asian Big Mac eaters could be getting more from their two all-beef patties than the sum they actually pay (that is, McDonald's is selling it at a massive discount to what it could charge).

If that status is valued at, say 10 yuan extra, then the yuan is actually worth 6.22 to the dollar and is less than 10 per cent undervalued. But if that brand effect has already been priced in, then the yuan should be even stronger than the index suggests - the US dollar should actually be below par!

It should come as no surprise that using a single-item basket in a purchasing price index is fraught with difficulty, as The Economist itself acknowledges. It's meant to be a light-hearted gauge of fair value. But that probably won't stop the China-bashers from using it to prove their point.

This article was first published in The Business Times.