Goldman Sachs: Recent Underperformance To Persist

Goldman Sachs note that "the Peso outperformed NJA FX in 2020 as weak domestic demand suppressed imports, which resulted in a significant improvement in the current account, while capital outflows were fairly moderate (unlike several other markets in Asia). Domestic activity has recovered at a slower-than-expected pace over the past few months, as containment restrictions remain amongst the most stringent in the region. Vaccine deployment is also likely to take some time, with Philippines only reaching herd immunity in late 2022 on our vaccination timelines. The muted domestic recovery has weighed on imports which were still down 15% y/y in Q4, while exports were already back to pre-COVID levels. However, as the economy gradually opens, and with rising commodity prices, we expect the current account to gradually deteriorate and return to a deficit by late 2021. This underpins our bearish PHP outlook. Meanwhile, despite the pick-up in global growth and improved risk appetite, we do not expect significant portfolio inflows into the Philippines capital markets. Lastly, after PHP outperformance in 2020, we think the authorities will likely not be comfortable allowing significant PHP appreciation again, which was reflected by USD/PHP failing to break below PHP48.0 since December. Given these factors, we think the PHP should continue to underperform NJA peers in the months ahead."