10 December 2018

What Kazakhstan’s currency devaluation is telling us

Last week Kazakhstan’s central bank devalued its currency by 19 percent, sending the exchange rate to 185 tenge against the US dollar. The central bank said the move was aimed at preempting a potential surge in speculation amid the devaluation of other emerging-market currencies. Hong Kong Economic Journal’s EJ tactics column takes at look at the implications.

Currency markets have experienced heightened volatility since the United States’ Federal Reserve unveiled its plan to scale back its quantitative easing program, fueling massive capital outflows from developing countries, which in turn have exerted enormous pressure on the exchange rates of emerging-market currencies.

By devaluing the tenge, the National Bank of Kazakhstan was taking a preemptive action against such capital outflows, in contrast to Argentina, which was forced to devalue its currency after a sharp drop in the value of its foreign exchange reserves.

The depreciation of the tenge had an impact on certain companies listed in Hong Kong. SPT Energy Group Inc. (01251.HK) filed a statement to the stock exchange to clarify that not all the revenue it makes in Kazakhstan is denominated in tenge. Kazakhmys Plc. (00847.HK) was prompted to raise the salaries of its staff by as much as 10 percent to help them cope with the devaluation.

As the world’s biggest inland country with only 17.1 million people, Kazakhstan relies heavily on imports, particularly of consumer goods, while focusing on oil and gas production, coal and metal mining, as well as agriculture.

The nation has also opened its doors to direct investment from foreign companies, making the impact of potential capital outflows even greater on its economy.

Meanwhile, Russia, Kazakhstan’s largest trading partner, has seen its rouble lose 7 percent in value against the US dollar since the start of the year. This loss has also affected the stability of the tenge, which is linked to the Russian currency as well as the euro and the US dollar.

Investors should also brace for further deterioration in Russia’s financial stability as a result of the Fed tapering as well as the nation’s gigantic investment for the Sochi Winter Olympics.

And once Russia becomes the focus of market concerns, the impact on capital markets would be far greater, the columnist warns.

– Contact the writer at [email protected]




Freelance journalist

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