JPM: Current A/c Improvement Largely Priced In

J.P.Morgan note that "the bulk of improvement in the Philippine current account deficit is behind us. We forecast a gradual widening in the external balances later this year as domestic activity resumes, followed by a more material widening next year. Rapid accumulation of fiscal reserves suggests government spending could rise quickly once stimulus packages are approved, but our base-line forecasts assume these will have a material negative spillover onto the external balances only in 2021. This year's improvement in the Philippine current account outlook now looks largely priced into PHP FX. Trade and remittance flows suggest USD/PHP fair value at around PHP47.5, implying the peso is at best around 1%-2% cheap. While current account tailwinds are fading, a favorable policy backdrop for PHP looks set to persist given limited evidence of BSP resistance to recent FX strength. With PHP neither hostage to large foreign flows, nor facing the persistent hurdle of large-scale official intervention, peso resilience can linger into early 4Q. A trend deterioration in the trade deficit going into 2021 tempers our enthusiasm for long-term peso outperformance. But this looks like a year-end story rather than an imminent inflection for PHP. With the runway for peso outperformance shortening, we are marking up our USD/PHP forecasts into 2021 in line with the expected deterioration in external balances: Q320: 48.00, Q420: 48.00, Q121: 49.00, Q221: 49.50."