EMERGING MARKETS-Elevated yields buoy Indonesian rupiah; South Korea, Taiwan stocks slide

By Roshan Thomas

Oct 29 (Reuters) - Indonesian stocks fell on Thursday and the rupiah firmed as benchmark 10-year bond yields hit six-year highs, while stocks in South Korea and Taiwan fell amid mounting unease over whether vast AI investments will generate commensurate returns.

Jakarta's benchmark 10-year yield held at 7.707%, its highest since mid-May 2020. It is up more than 150 basis points this year, driven by rising oil prices and concerns over MSCI's proposed review of the country's market status.

https://www.reuters.com/graphics/EMERGING-MARKETS/lgpdbbnyapo/chart.png

Bank Indonesia delivered three rate hikes between May and June. It next meets in mid-November, with the swaps markets signalling expectations of further policy tightening.

The elevated bond yields helped the rupiah pull away from the record lows it neared earlier this week.

Higher yields could support the rupiah by attracting foreign investors back into Indonesia's debt market and boosting capital inflows, said Fakhrul Fulvian, chief economist at Trimegah Sekuritas Indonesia.

"The current rise in yields (is) less as a permanent deterioration and more as part of a necessary repricing process. Higher yields today can be part of the mechanism that supports a stronger rupiah tomorrow."

Stocks .JKSE, among the worst-performing equity markets in the region this year, fell as much as 3%.

The MSCI gauge of emerging Asian equities .MIMS00000PUS fell 1%, dragged lower by the tech-heavy South Korean and Taiwanese benchmark indexes, which together account for more than half of the regional gauge.

Shares of Samsung Electronics 005930.KS fell 4.1% after the chipmaker reported earnings below analyst expectations, while Alphabet GOOGL.O dropped 10% in after-hours trading, wiping almost $400 billion off its market value on concerns over steep cash burn.

The latest results have laid bare the growing investor unease over the AI trade, as companies continue to ramp up spending with little clarity on when those investments will begin to justify stretched valuations.

South Korean stocks .KS11 ended 1.2% lower. Taiwan stocks .TWII lost 0.9%, with chip giant TSMC 2330.TW down over 0.4%.

Elsewhere, Asian currencies broadly strengthened after the Fed's widely expected pause.

"The Fed's decision to hold rates removed the near-term rate hike threat that had been the dominant pressure on Asian FX through October, giving regional currencies room to breathe," said Inki Cho, senior financial market strategist at online trading platform Exness.

The South Korean won and the Malaysian ringgit led regional gains, both rising 0.4%. The Philippine peso climbed 0.1%, recovering from the record low of 64.171 per dollar touched on Tuesday.

The Thai baht inched 0.2% lower after the central bank left its key interest rate unchanged for a fourth consecutive meeting on Wednesday, in line with expectations. Equities .SETI lost 0.9%.

HIGHLIGHTS:

** Japan bonds steady ahead of BOJ decision; strong auction lends support

** Thai central bank chief says growth too low, focus on supporting economy

** Bearish rupiah bets at four-month high; peso, Taiwan dollar sentiment sours