Kazakhstan just intensified the global currency war.

By allowing a 23 percent plunge in the tenge, central Asia'sbiggest oil exporter signaled a new wave of devaluations indeveloping nations forced to compete against weaker currencies.Egypt and Nigeria look the most vulnerable to John-Paul Smith, theex-Deutsche Bank AG strategist who predicted Russia's 1998 crisisand this year's China's rout.

To Bernd Berg, a London-based strategist at Societe Generale SA,African currencies like the naira and those of former Soviet Unioncountries “will be next.”

Developing nations are under increasing pressure from weakercurrencies in China and Russia, plunging prices for commodityexports and the prospect of higher U.S. interest rates. KazakhPresident Nursultan Nazarbayev, who earlier this year pledged toavoid any sharp depreciation, said today's adjustment was essentialto avoid a recession.

“The major commodity exporters are the most vulnerable,” Smith,who founded Ecstrat, a London-based research firm, said by emailtoday. “If, as I believe, the oil price is likely to remain atcurrently depressed levels or even move lower over the medium term,then the main Gulf currencies will come under increasing pressure,although there will be ferocious political resistance to anydevaluation.”

Egypt has struggled with a foreign-currency shortage since the2011 Arab Spring protests sent investors and tourists fleeing. Ithas attempted to fend off further weakness after this year's 8.6percent slump in the pound by limiting access to hard currencies.Egyptian investors are restricted from obtaining foreign currencyby buying shares locally and selling them abroad, for example.Egyptian central bank officials weren't available for comment.

Problems in Egypt, Nigeria, and Former SovietStates

Egypt has relied on aid from the Gulf states in recent years.Saudi Arabia, Qatar, and the United Arab Emirates probably will be“forced eventually to adjust or abandon their dollar pegs,” saidSmith. “But any movement is unlikely over the short term.”

He recommends being “very underweight” in emerging-marketstocks. The benchmark MSCI Emerging Markets Index, down 13 percentthis year, will probably be down 20 percent by year-end, hesaid.

In Nigeria, trading restrictions imposed in February to preventthe flight of dollars have left importers unable to pay supplierswhile the black market in foreign banknotes thrives. The naira hadtumbled 20 percent in the 12 months to February.

Standard & Poor's said last month another naira devaluationis “inevitable”—possibly by more than 15 percent.

“We haven't seen any reason so far to institute a change in theFX policies,” Ugochukwu Okoroafor, a spokesman for the Central Bankof Nigeria, said by phone from Abuja today.

Former Soviet states that may struggle to withstand depreciationpressure include Armenia, Azerbaijan, and Georgia, according toTimothy Ash, a credit strategist for emerging markets at NomuraHoldings Inc. in London. Most have less ammunition than Kazakhstan,which has almost $100 billion in overall reserves.

To Per Hammarlund at SEB's chief emerging-market strategist inStockholm, depreciations of 10 to 20 percent look likely forKyrgyzstan, Turkmenistan, and Tajikistan.

“They simply don't have much of a choice but to follow Russiaand emerging markets more generally,” Hammarlund said by email. Herecommends selling developing-nation currencies while looking outfor a “rebound and potential stabilization” after the first U.S.interest-rate increase.

Rand Also Vulnerable

Speculation of monetary policy tightening by the Federal Reservehas driven currencies lower in the past few months. Turkey's liraweakened beyond 3 per dollar for the first time today and Russia'sruble fell for a sixth day to a six-month low. Ukraine's currencydropped 3 percent, extending this year's biggest exchange-rateretreat after the Belarusian ruble.

Along with former Soviet countries, African currencies arevulnerable, including free-floating exchange rates that havealready tumbled, like South Africa's rand, said Berg at SocGen. Therand's 11 percent retreat this year, to 12.9 per dollar, looks setto extend to 14 within two months, he said by email.

Reliance on China for exports makes the rand the “mostvulnerable” in the region from Europe to Africa, according toTatiana Orlova, the chief Russia economist for Royal Bank ofScotland Group Plc in London. Exports to China account for morethan 12 percent of South African economic output, more than doublethe proportion for Kazakhstan, according to RBS.

–With assistance from Ahmed A. Namatalla in Cairo.

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