July 1, 2020 / 4:31 AM / a month ago

EMERGING MARKETS-Philippine peso, Indonesian rupiah defensive as stocks rally

    * Graphic: World FX rates tmsnrt.rs/2egbfVh
    * Graphic: Foreign flows into Asian stocks tmsnrt.rs/3f2vwbA
    * Indonesian rupiah down for fifth session, up 13% in Q2
    * Philippine peso depreciates in wake of falling yields

    By Rashmi Ashok
    July 1 (Reuters) - The Philippine peso and Indonesian rupiah
underperformed Asian peers on Wednesday as falling local yields
and pressure on the currencies from rate cuts dented their
appeal, keeping them from enjoying broader gains fuelled by
upbeat Chinese data.
    The peso eased 0.2% against the dollar, while stocks
in the country slipped 1% and were on course for a
third-straight week of losses.
    Philippine 10-year bonds saw yields dive half a
percentage point at the start of the week to 2.8% and have clung
to similar levels since, after the central bank unexpectedly cut
interest rates by 50 basis points to a new low last week.

    While the rate cut - the fourth this year - sapped gains in
the peso, demand for Philippines' bonds was still unaffected,
with a fresh auction on Monday being oversubscribed.
    "Investors must come to terms with the lower yields in their
global hunt, keeping in mind that such an environment is
supportive of the fiscal financing needed to tackle the economic
effects of COVID-19," said Han Tan, market analyst at FXTM.
    "Despite the recent yield drop, the Philippines still offers
higher yields compared to South Korea, Thailand, and Taiwan on
the 10-year benchmarks."
    In Indonesia, inflationary concerns lingered after the
government on Monday said Bank Indonesia (BI) would buy low
yielding bonds, including those with zero yield, to finance a
ballooning fiscal deficit caused by spending to fight the
    The rupiah fell 0.5%, declining for the
fifth-straight session. Still, the currency was the top gainer
in the region in the second quarter of 2020 by a wide margin,
appreciating 13%.    
    Bank Indonesia's purchases may stabilise the bond market,
but may undermine its main policy goal of rupiah stability if
debt monetization risks take hold or credit rating risks
surface, analysts at Mizuho wrote in a note. 
    Elsewhere, Asian equities clocked modest gains, finding
support from a private survey that showed China's factory
activity grew at a faster clip in June after the government
lifted coronavirus lockdown measures.
    A positive session on Wall Street overnight and a survey
showing U.S. consumer confidence rebounded in June as businesses
reopened also helped, with Singapore, Taiwan and
South Korean stocks adding around 1% each.
    ** Singapore STI's top gainers included SATS
 and Venture Corp up 2.1% each.
    ** Top gainers on the Thailand's SETI include Thai
OPP up 14.8% and Asia Precision rising 13.2%
    ** Thailand's 10-year government bond yields were up 5 basis
points at 1.27%​​ while 3-year yields rose 2 basis points
to 0.6%​​.

  Asia stock indexes and                                     
 currencies at   0336 GMT                             
                     DAILY        %            DAILY    YTD %
                         %                         %  
 Japan               +0.19    +0.83            -0.19    -5.96
 China    <CNY=CFX   +0.01    -1.43             0.83    -1.34
 India               +0.00    -5.46             0.00   -15.34
 Indones             -0.49    -2.60            -0.24   -22.32
 Malaysi             +0.07    -4.44             0.03    -5.49
 Philipp             -0.19    +1.64            -0.80   -21.21
 S.Korea  <KRW=KFT   +0.10    -3.78             0.79    -3.31
 Singapo             -0.01    -3.51             0.74   -19.04
 Taiwan              +0.67    +2.18             0.85    -2.31
 Thailan             -0.13    -3.30             0.53   -14.80

 (Reporting by Rashmi Ashok in Bengaluru
Editing by Vidya Ranganathan and Sam Holmes)
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