On Thursday, Kazakhstan devalued its currency, the tenge, by abandoning a peg to the dollar and allowing the market to set the price.
Shortly after that, the Kazakh currency crashed by about 23% against the dollar.
But that might not be the end. Analysts believe that some of the other Central Asian countries, as well as other commodities producers, could feel the effects of a weaker tenge relatively soon.
“Tajikistan and Kyrgyzstan are most likely to suffer from the weaker tenge, BMI Research said in a note that was released on Wednesday after Kazakhstan allowed the currency to drop 4.5 per cent in a precursor to the free float. SEB AB in Stockholm said Thursday that Kyrgyzstan’s som, Turkmenistan’s manat and the Tajiki somoni were next in line.,” according to Bloomberg.
“They now face additional pressure to weaken by between 10% and 20% over the coming three to six months, perhaps even earlier,” Per Hammarlund, the chief emerging-markets strategist at SEB in Stockholm told Bloomberg.
Additionally, some analysts are also concerned about a so-called “currency war”: other developing countries would be forced to compete against the weaker currencies (in this case, the tenge), and will subsequently also devalue their own currencies.
In this scenario, John-Paul Smith, an ex-Deutsche Bank AG strategist who called this year’s China chaos and Russia’s 1998 crisis, told Bloomberg that Egypt and Nigeria “look the most vulnerable.”
Bernd Berg, a London-based strategist at Societe General SA, expressed a similar opinion, noting that the South African rand, and other currencies in the former Soviet Union “will be next.”
Currently, the tenge is trading around252.4 per dollar, and got as low as 257.04 earlier in the day.
Kazakhstan’s economy has been wedged into an uncomfortable corner over the last few months. For starters, it is reliant on oil, which has fallen about 30% in the past few weeks. Furthermore, Kazakhstan sits between Russia and China — two countries that have seen their own economic swings as of late.
And on top of that, although the Central Asian country is certainly feeling the pain as black gold dips lower and lower, the government is also extremely concerned about the “looming unrest in the oil sector” — and the possibility that this could lead to greater social unrest.