Goldman Sachs: Improved External Position Keeps Us Bullish

Goldman Sachs note that "PHP is the best performing NJA currency this year. After the Philippines imposed one of the strictest lockdowns in the region, domestic consumption collapsed and the trade deficit narrowed to just US$3.4bn in Q2, from an average of US$10.2bn per quarter in 2019. Meanwhile, foreign currency debt issuance by both Philippines corporates and the government rose significantly, as foreign financing costs fell. Foreign currency issuance YTD has been around US$12bn, double the US$6.1bn issued in 2019. The conversion from these proceeds into local currency may have helped to offset the recent decline in remittances, which have fallen to around US$2bn/month recently, versus US$2.5bn in 2019. Going forward, we expect that the PHP will continue to outperform. Even if growth picks up, we think government discretionary spending will be channelled more towards household transfers and SMEs, at the expense of infrastructure spending, which would imply fewer capital imports."