“With what you call the frontier markets, there is some interest again”

A fairly recent WSJ piece highlights the reemergence of interest among many investors in frontier currencies, driven primarily by the persisting, low interest rate environment among more developed countries.  Geoffrey Pazzanese, co-manager of the Federated InterContinental Fund (RIMAX), points to currencies in Vietnam, Kuwait and Indonesia in particular as currencies that diversifying investors seem especially keen on.  That said, the piece notes, frontier currencies tend to be thinly traded, relatively speaking, and also may represent “complex currency systems that are strictly controlled by central banks, [such] as in Vietnam, [which] can also make it difficult to execute trades swiftly.”  Per Vietnam, for instance, the central bank devalued the dong in mid-August for the third time in the past year to help curb a widening trade deficit, meaning that banks in turn will need to keep lending rates level or perhaps even raise them in order to keep their real rates positive.  And because many analysts expect further devaluation in the future, the government’s benchmark rate of 8 percent is likely to rise as well.  “All in all, the 2 percent devaluation came sooner than we had expected, but it was also smaller than we had expected,” Singapore-based Tamara Henderson, head of Asian foreign exchange research at Australia & New Zealand Banking Group Ltd., wrote several weeks ago.  “We continue to expect a move to the 20,000 level in the dollar-dong in the first part of 2011.”