Taipei shares outlook: Higher on Wall Street gains/rate cut hopes

TAIPEI (AFX-ASIA) - Share prices are expected to open higher following some gains on Wall Street overnight and on hopes of a 75-basis point cut in U.S. interest rates at the FOMC meeting, dealers said.	    However, gains will likely be capped by the impact of the yen's weakness on the local currency and exporters' competitiveness, as well as economic concerns and TSMC's consideration of a further capital expenditure cut, they said.	    TSMC is considering scaling down its capex this year to 70 bln twd from 80 bln set earlier.	    Yesterday, the weighted index closed down 142.04 points at 5,641.89 on turnover of 75.97 bln twd. 	    Foreign institutions were net buyers of shares worth 325.80 mln twd, local investment trusts net sellers of 721.23 mln twd and brokers net sellers of 584.08 mln twd.	    "There are expectations that the central bank here would move in line with Japan and the U.S. on interest rate cuts, which would spark liquidity injection into stockmarkets," Daiwa SBCM Cathay Securities Co Ltd assistant general manager Frank Lin said.	    He said the market has raised its xpectations of an FOMC rate cut to 75 basis points from 50 basis points and sentiment will be dampened if the cut turns out to be lower, although ironically, a 75 basis point reduction may be indicative of a worsening U.S. economy.	    It remains to be seen whether the rate cut hopes are going to be sufficient to bolster Taiwan shares throughout the session, he said.	    "My view is that of a rangebound consolidation in thin trade this session on uncertainties on Wall Street, the local bourse, and the yen," Lin said.	    He said the local currency may weaken further to 33.00 or even 34.00 should the yen depreciate to 130.00 or 140.00 against the U.S. dollar.	    "Foreign capital will be reluctant to move in should the local unit lose more ground."	    Moreover, the yen may lose strength much quickly than the Taiwan dollar, leading to higher costs for local manufacturers who import components from Japan .	    "Local electronics exporters accordingly may lose competitiveness to Japan companies on electronics products."	    He also said TSMC's capex reduction possibility confirms the wafer foundry industry's weakness.	    "There is no sign that suggests a recovery by the third quarter, visibility is still limited and uncertainties remain on the foundry sector's prospects," he said. 

Related stock : (NIL)