Asia FX 2025 Outlook Podcast Series #3: Outperformers and Vietnam as microcosm of China+1
The desk views the Philippine Peso (PHP) and Indian Rupee (INR) as potential outperformers in the Asian FX landscape, particularly in light of geopolitical shifts surrounding China. Per the full note , Michael Wan from MUFG highlights how the anticipated return of Trump-style policies could reshape supply chains, benefiting Vietnam as a key player in the region. This perspective aligns with a broader narrative of diversification away from China, which is expected to bolster currencies like the PHP and INR. As institutional traders navigate this evolving landscape, the implications for currency positioning are significant, especially given the lack of immediate high-impact events on the calendar.
What the desk is arguing
MUFG identifies the PHP and INR as likely outperformers in the Asia FX space throughout 2025, driven by favorable economic fundamentals and geopolitical shifts. The discussion emphasizes a potential resurgence of protectionist policies under a new Trump administration, which could further amplify the shift of supply chains from China to Vietnam, enhancing its growth prospects and, by extension, invigorating the PHP and INR.
This perspective rejects the notion that regional currencies are poised for broad stagnation, arguing instead that targeted economic policies and shifting supply chains present unique opportunities for the PHP and INR. This analysis indicates a more nuanced understanding of regional economic interdependencies rather than a simplified outlook based on global economic trends alone.
Where it sits in our coverage
Our current consensus target for the PHP stands at 1.075 with a firm spread of 0.08, reflecting a moderately bullish view that aligns well with MUFG’s analysis. While we anticipate some volatility due to external pressures, the potential for the PHP and INR to benefit from tailored economic policies is a theme we recognize and support in our forecasts.
In comparison, here's how other firms view the PHP against the backdrop of our consensus:
- JPMorgan: Target of 1.10, suggesting a bullish stance with expectation of gradual appreciation.
- Goldman Sachs: Target of 1.08, indicating cautious optimism on the PHP’s prospects.
- HSBC: Target of 1.07, reflecting a more conservative outlook based on macroeconomic challenges.
How other firms see it
The outlook on the PHP and INR as outperformers is supported by several firms, aligning with MUFG’s sentiments. Key players like JPMorgan and Goldman Sachs echo similar bullish forecasts, suggesting a broadly positive sentiment for these currencies in 2025.
Conversely, some firms have adopted a more skeptical view of the PHP's trajectory. BofA particularly has set a lower target of 1.04, concerned about potential economic headwinds that might overshadow the optimism surrounding supply chain shifts.
- BofA: Target of 1.04, signaling a contrary stance amid potential economic slowdowns.
- Morgan Stanley: Target of 1.05, expressing caution linked to geopolitical tensions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01MUFG sees the PHP and INR as potential outperformers due to macroeconomic and geopolitical factors.
- 02The anticipated 'Trump 2.0' administration may intensify focus on shifting supply chains from China to Vietnam, impacting the regional economy.
- 03Several firms support a bullish outlook on the PHP and INR, while a few express caution amid broader economic uncertainties.
Market implications
The anticipated strength of the PHP and INR could attract foreign investment, particularly in sectors aligned with supply chain shifts. Positive sentiment around these currencies may lead to increased funding flows into associated markets, providing further support for their appreciation.
Risks to this view
Key risks to the outlook include potential delays in the recovery of global supply chains, unexpected geopolitical tensions, and domestic economic fluctuations in the Philippines and India that could impact investor confidence.
Welcome to the MUFG Global Markets Asia podcast. I'm Michael Wan, Senior Currency Analyst in the MUFG Global Markets Asia Research Team. Today is December 16, 2024.
The following podcast is for informational purposes only. It is intended for professional investors and eligible counterparties, and not for retail clients. Any content should not be regarded as an offer to conduct investment businesses or investment recommendations.
Hi everyone, we recently published our AsiaFX Outlook for 2025, titled Navigating AsiaFX Markets in TRUMP 2.0. Among others, there were two key messages which stood out in our report which we will touch on in detail in this podcast. First, our expectation that the Philippines Peso, and to a smaller extent the Indian Rupee, would outperform in the context of swift tariff implementation by TRUMP 2.0.
Second, we think that the China-linked supply chain, and in particular Vietnam, will likely be a focus of the TRUMP administration this time around. As such, the Vietnam Dong could be somewhat more vulnerable, but we caution against being too bearish at this stage due to offsetting factors and structural advantages inherent in Vietnam's manufacturing sector. So first off, the FX outperformers in 2025, the Philippines Peso and the Indian Rupee.
For one, on the global front, the Philippines and India should be more insulated from TRUMP 2.0 in 2025 among AsiaFX. These countries are more domestic-oriented to begin with, and less sensitive to possible US tariffs, and also because they are less leveraged to the indirect impact of a global and China growth slowdown. In addition, the Philippines and India are less likely to be singled out by TRUMP for their trade practices, certainly relative to the likes of say Vietnam.
A broad 10-20% import tariff is of course a risk, but this would not be a factor specific to either the Philippines or India. Where the Philippines and India could be more negatively impacted is through TRUMP's immigration policies, especially on illegal immigrants. Remittances from the US to the Philippines makes up 3% of its GDP, the highest in Asia, but our assessment here is that the vast majority of immigrants from the Philippines to the US are permanent residents, and hence the direct impact of remittances should be quite manageable.
For India, remittances from the US makes up less than 1% of its GDP, but a key risk for India could potentially be materially stricter rules on H-1B visas, and the knock-on impact to India's IT services company. Again, our assessment here is that the impact should also be quite manageable, given that IT services firms have over time relied less on the H-1B for their projects based on our understanding. Of course, TRUMP is not the only factor at play here.
Sources & References
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