Serb dinar no one-way bet despite Mladic arrest

Serbia's dinar jumped this week after the arrest of Ratko Mladic cleared a key obstacle to the country becoming an EU candidate, but a look at the bloc's other recent joiners suggests the currency is no one-way bet. For starters, the arrest only brought Belgrade closer to a whole new series of challenges which the EU's 12 new entrants since 2004 have taken at least half a decade to finish.
And while investors have flooded into these mostly ex-communist states since the prospect of European Union entry arose last decade, political turmoil and global crises have taken them on a roller-coaster of losses and gains.
Four countries that joined the Union in 2004 provide starkly differing lessons. The Czech and Slovak currencies have gained more than 40 percent over the last decade. But the Polish zloty and Hungarian forint have actually weakened during that time.
"It's a very long term bet. EU candidates can take ages to reach fruition," said Nigel Rendell, a strategist at RBC. "I would think in the case of Serbia, if you wanted to invest and forget about it for 10 to 15 years, you might make some money, but we wouldn't recommend it in the short term."
The dinar jumped 0.4 percent after Mladic's arrest on Thursday but erased those gains a day later after investors began to digest the still considerable challenges Serbia faces to win EU candidancy status.
The thinly-traded currency has led the region this year, gaining 9.3 percent against the euro on the back of a central bank tightening campaign that has pushed official rates to 12.5 percent.
The dinar has experienced sharp swings, however, and lately the central bank has shown a tendency to intervene to control excessive volatility.
The market's low liquidity compared with others in the region could increase such turbulence if investors were suddenly to dump their positions in a swing towards risk aversion.
"It's is not definitely a one-way bet," said OTP Bank analyst Balint Szaniszlo.
Of the EU's 12 newest members, 10 - Poland, Hungary, the Czech Republic, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Cyprus and Malta - joined in 2004, with four of them since having joined the euro zone.
The Czech crown is now about 45 percent stronger versus the euro - and 60 percent against the dollar - since the single currency was launched in 1999, and the capital Prague is now the sixth richest area in the union in terms of purchasing power. Like Serbia, Slovakia once lagged its regional peers. But its voters rejected authoritarian prime minister Vladimir Meciar in 1998 and saw their currency appreciate almost 43 percent against the euro until Bratislava joined the euro zone in 2009.