According to Russell Investments global head of investment strategy Andrew Pease, concerns over China's slowdown and the impact of the economic downturn in Asia's export-exposed economies have overshadowed the strong policy moves in Europe and Quantitative Easing 3 (QE3).
"This year's Asian underperformance in part reflects the current risk-off rally. We may be near the peak of the current risk-on cycle as the United States fiscal cliff could cause another risk-off episode."
Despite the underperformance, it provided an opportunity to invest in the region, Mr Pease said.
"Our composite value indicator suggests that the region was approximately 10 per cent undervalued. Among the countries, China, India and South Korea are the most undervalued in Asia ex-Japan.
"Although the outlook for growth in 2013 and beyond will remain uncertain, the Chinese economy should soon stabilise and outperform."
Russell Investments remained cautiously optimistic on Asian markets as they were highly dependent on global macroeconomic factors.
In addition, Asian markets have registered double-digit gains so far this year due to the impact on the European Central Bank's bond-buying program and QE3, Mr Pease said.
"However, Asian exports, particularly Chinese, fell as their major trade partners in Europe are facing tough conditions.
"We do think most Asian markets have some valuation upside and should outperform the United States in a moderately positive share market environment."
According to the report, Thailand and Malaysia were the region's most expensive markets.
In addition, Thailand was one of two Asian markets expected to grow fast in 2012 and greater than its 10-year average.
Furthermore, the report found that financials, energy and industrial sectors were the most attractive, trading at a price to earnings (PE) ratio discount but consumer staples, telecomm services and information technology were trading at a PE ratio premium.
