LONDON The devaluation of Kazakhstan's rouble-shadowing tenge has left investors wondering which other closely managed emerging market currencies might be next, with those of commodity exporters like Nigeria and Angola in the spotlight.
The free-floating currencies of the 'Fragile Five' countries that rely on foreign investment to finance deficits - Brazil, India, Indonesia, Turkey and South Africa - felt the brunt of an emerging market sell-off that began last May.
Then, investors who could easily take their money out of these countries returned it to the United States as the prospect of a cut in the Federal Reserve's bond-buying programme pumped up the yields on U.S. bonds.
The sell-off has quickened this year as Fed tapering has begun, spreading to countries with higher political risks, such as Hungary and Russia.
But oil exporter Kazakhstan's hefty 19 percent devaluation of its tenge earlier this month to keep it in line with the currency of regional giant Russia has made investors nervous about less flexible currency regimes.
Currencies pegged to the dollar or managed within a narrow band had until recently avoided the worst of the sell-off.
But as weakness in emerging markets continues, fuelled by worries about a slowdown in China and further monetary tightening in the United States, central banks are likely to run out of firepower to keep their currencies stable.
And if they export commodities, for which the price outlook is not comforting, they may need the extra local currency that a devaluation would bring, to lower local manufacturing and debt servicing costs.
"For the commodity exporters, it's going to be fragile, we are going to see policy mistakes in these countries," said Lars Christensen, head of emerging markets research at Danske in Copenhagen. "It's time to have a look at some of the African currencies."
After Turkey raised rates by a whopping 425 basis points at an emergency meeting last month, and other Fragile Five members tightened policy to defend their currencies, attention has turned to countries such as Nigeria.
It was a star performer last year due to growth in financial services and consumer markets, along with its status as Africa's top oil producer.
But Nigerian stocks .NGSEINDEX have fallen 6 percent this year after a 47 percent rise last year, and the naira currency has fallen below its managed 150-160 band to the dollar despite central bank intervention.
With presidential elections next year, Nigeria also has a political risk problem, while there will also be a change at the helm of the central bank in the next few months when highly respected governor Lamido Sanusi steps down.
Foreign exchange reserves have dropped by 10 percent from a year ago to $42 billion - barely six months' worth of import cover. While the minimum yardstick for import cover is normally three months, analysts say an oil exporter like Nigeria should have more of a cushion because oil is priced in dollars.
"We are at the end-game," said Angus Downie, head of economic research at Ecobank. "There is a real risk if the naira does not stabilise and the central bank cannot maintain market confidence, then devaluation is what we are looking at."
Devaluation would cut the value of international investors' holdings of Nigeria's domestic debt or local shares.
Renaissance Capital sees a possible devaluation after the change of governor, to 160-170 naira per dollar, although it and several other analysts expect the central bank to tighten monetary policy first to support the currency.
The smaller, more closed economy of Angola may also suffer a devaluation of its kwanza currency, as it depends both on oil exports to and investment from a slowing China.
The Angolan central bank tries to keep the currency stable through interventions, but its forex reserves also stand only at around six months of import cover, analysts say.
"The China shock is likely to lead to depreciation pressures on the Angolan kwanza," wrote Danske's Christensen in a recent blog. "If the Angolan central bank tries to maintain a quasi-pegged exchange rate then these depreciation pressures will automatically translate into a significant monetary tightening.
"The right thing to do is therefore ... to allow the kwanza to depreciate to adjust to the shock."
Other oil-exporting markets with fixed currencies, such as Algeria, Kuwait or the United Arab Emirates, are seen at less risk of devaluation.
Their markets are less open to the fickle speculative flows that have hit those emerging markets which are more integrated with the global financial system, or they enjoy larger cash buffers with which to support their currencies.
Only further weakness in the growth outlook for China and the United States, impacting commodity demand, could shake these currency props.
"For the GCC (Gulf Cooperation Council) countries there is no currency risk impact," said Slim Feriani, Chief Executive Officer of Advance Emerging Capital.
"The oil price has more of an impact. If oil prices were to fall and stay low for three, four, five months, it would start to affect sentiment."
(Editing by Catherine Evans)