Goldman Says Sell Philippine Peso on Current Account, Buy Yuan

(Bloomberg) -- The Philippine peso is set to lag peers as the nation’s current account deficit widens, according to Goldman Sachs Group Inc.

The Southeast Asian nation’s currency will likely weaken this year given the dovish orientation of its central bank and increased fiscal spending, Goldman strategists including Zach Pandl wrote in a Jan. 10 note. The firm recommends shorting the peso against the offshore Chinese yuan, which may benefit from improving sentiment as the U.S. and China prepare to ink a phase-one trade deal.

“We expect the higher overall pace of public infrastructure spending and private investment to cause a deterioration in the current account,” they wrote. “The peso will underperform non-Japan Asian currencies driven by idiosyncratic factors and prefer to express this via being long the offshore Chinese yuan.”

Goldman’s note was published before the Taal Volcano south of Manila began erupting, triggering earthquakes and spewing massive clouds that have covered the region with ash. It isn’t clear yet how much economic impact the eruption may cause, though stocks and FX trading was suspended in the country on Monday.

The Philippine central bank expects the current-account shortfall will widen to $8.4 billion this year from an estimated $5.6 billion in 2019.

The peso has been little changed against the dollar since the start of this year as a spike in crude prices triggered by U.S.-Iran tensions spurred investors to sell the oil-importing nation’s currency. The currency dropped briefly to 51.32 per dollar on Jan. 6, the weakest since Oct. 25 -- though it recovered throughout the week and ended Friday at 50.66.

The offshore yuan, on the other hand, is Asia’s top-performing currency this year along with Indonesia’s rupiah as thawing trade relations between Washington and Beijing boost demand for Chinese assets. Improving Chinese economic growth will support the currency further, according to the Goldman strategists.

“We expect China’s economic growth to bottom out in the fourth quarter and for activity data to pick up in 2020,” they wrote.

--With assistance from David Finnerty.

To contact the reporter on this story: Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Joanna Ossinger, Brett Miller

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